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Mid-year muni credit scorecard: where to stay defensive and where risks are rising

BY SourceMedia | MUNICIPAL | 10:12 AM EDT By Jeff Lipton

Municipal bond credit quality remains in good standing. However, I continue to see emerging weakness across the credit ecosystem. There are various factors that contribute to this observation, but the more obvious ones include a depletion of federal stimulus funds and an organic slide in credit metrics thanks to slower economic growth and lingering inflationary pressures, which have been amplified by trade tariffs and the Iran war. As we approach the conclusion of the first half of 2026, I thought it would be beneficial to craft a mid-year credit scorecard with outlook assignments on our major public finance sectors. The scorecard shows the current risks for each sector with associated risk mitigants, and collectively they form the basis for the outlook.

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In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible.

Lower-quality debt securities generally offer higher yields, but also involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Any fixed income security sold or redeemed prior to maturity may be subject to loss.

Before investing, consider the funds' investment objectives, risks, charges, and expenses. Contact Fidelity for a prospectus or, if available, a summary prospectus containing this information. Read it carefully.

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