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By Tom Kozlik
Head of Public Policy and Municipal Strategy
Hilltop Securities Inc.
The Federal Reserve is likely to keep its target rate unchanged this week, but falling oil prices may be taking some pressure off the inflation outlook just as the market heads into Kevin Warsh’s first meeting as chair. If that continues, Treasury and municipal yields could begin to fall again after spending much of the spring rangebound at higher levels. For municipal investors, that matters because lower long-term yields could reinforce a demand story that has already defined much of 2026.
Oil prices moved lower Monday as markets reacted to a reported U.S.-Iran framework that would reopen the Strait of Hormuz and reduce one of the most important recent sources of inflation pressure. The details are still incomplete, and the agreement is not fully public yet. But if the framework holds and the strait reopens as expected, one of the main near-term arguments for higher yields loses some force.
For municipal investors, lower yields could add to an already powerful demand story. Demand has been the defining municipal bond market story of 2026, and we made that point at the end of May. Since then, another $4.3 billion has flowed into municipal mutual funds over three weeks, including a $625 million inflow just last week, according to Lipper.
If lower energy prices help pull yields down again, demand for municipals could strengthen further. Supply has been strong enough to meet that demand so far, and issuance through May was running ahead of last year at a $47 billion monthly average (compared to $46 billion in 2025) even as markets adjusted to the risk that rates could stay higher for longer.
Readers may view all of the HilltopSecurities Municipal Commentary here.
As Head of Public Policy and Municipal Strategy, Tom Kozlik advises HilltopSecurities’ businesses and clients on strategies related to U.S. public policy, public finance, and infrastructure. He publishes regular commentary that provides insight into current trends affecting these themes across a variety of sectors and geographic regions. Kozlik is frequently featured in print, digital, and broadcast news segments and regularly offers his expertise as a keynote speaker and panelist at industry conferences and events across the country. He can be reached at 214.859.9439 or tom.kozlik@hilltopsecurities.com.
The paper/commentary was prepared by HilltopSecurities (HTS). It is intended for informational purposes only and does not constitute legal or investment advice, nor is it an offer or a solicitation of an offer to buy or sell any investment or other specific product. Information provided in this paper was obtained from sources that are believed to be reliable; however, it is not guaranteed to be correct, complete, or current, and is not intended to imply or establish standards of care applicable to any attorney or advisor in any particular circumstances. The statements within constitute the views of HTS Public Finance as of the date of the document and may differ from the views of other divisions/departments of Hilltop Securities Inc. In addition, the views are subject to change without notice. This paper represents historical information only and is not an indication of future performance. This material has not been prepared in accordance with the guidelines or requirements to promote investment research, it is not a research report and is not intended as such. Sources available upon request.
Hilltop Securities Inc. is a registered broker-dealer, registered investment adviser and municipal advisor firm that does not provide tax or legal advice. HTS is a wholly owned subsidiary of Hilltop Holdings, Inc. (NYSE: HTH) located at 717 N. Harwood St., Suite 3400, Dallas, Texas 75201, (214) 859-1800, 833-4HILLTOP.