US municipal bonds recorded their worst monthly performance in nearly two decades in September 2026, according to Bloomberg Markets. The selloff was driven by inflation concerns linked to US-Iran tensions and rising interest-rate expectations, which pushed prices sharply lower across the municipal debt market. Bloomberg Markets reported the drawdown as comparable in severity to the period surrounding the 2008 Lehman Brothers collapse.
The iShares National Muni Bond ETF (MUB) and the Vanguard High-Yield Tax-Exempt Fund (VWAHX) are directly exposed to the US municipal bond market and registered losses consistent with the broader selloff reported by Bloomberg Markets. Municipal bonds are issued by US state and local governments to fund public projects, and their prices move inversely to prevailing interest rates.
The municipal bond selloff occurred within a broader global fixed-income rout. UK gilt yields reached 6% for the first time since 1998 and the US 10-year Treasury yield climbed to its highest level since 2002, according to Bloomberg Markets and Guardian Business. Rising oil prices linked to Middle East geopolitical tensions were cited across reporting as a key inflationary pressure sustaining the global bond market decline.
No official regulatory statements or central bank commentary specifically addressing the municipal bond market performance were included in the reported coverage. The Federal Reserve's sustained focus on inflation, which Bloomberg Markets noted contributed to the dollar's strongest monthly gain since June, formed the broader policy backdrop against which the municipal market deterioration occurred.
Sources: Bloomberg Markets, Guardian Business, Marketwatch TOP, investinglive.com, Cnbc TOP, CNBC, CoinTelegraph