2026’s macroeconomic conditions are already shaping up to be similarly chaotic to 2025’s. How will the municipal credit market handle the pressure?
According to the experts at Northern Trust Asset Management, the municipal credit market may remain resilient this year. This analysis came from the recently-released the Northern Trust 2026 Municipal Sector Outlook, which evaluated the state of play for the U.S. economy and where municipal bonds fit into the puzzle.
In the outlook, the Northern Trust team surmised that due to a resilient economy and weaker inflation risks, a soft landing is the most likely scenario for the U.S. economy. Looking broadly, the Northern Trust outlook found that municipal credit is so resilient that it can likely even weather a few surprises from different macroeconomic risks.
That said, some municipal sectors could be more attractive than others. In particular, the Northern Trust Outlook highlights transportation and essential utilities as some of the strongest sectors, while noting higher education may be the weakest.
“Risks to federal policy changes have ebbed, although the potential for volatility remains. The passage of the federal tax bill, which left taxation of municipal bonds unchanged, resolved many unknowns,” the outlook stated. “Yet it put slow-moving cuts into place for Medicaid and food stamps, and it added pressure to states, hospitals and universities. The period around the November election could see increased volatility, as investors assess how the next Congress may increase or decrease pressure on states, hospitals and universities.”
Betting on Resilient Municipals With Bond Ladders
A resilient municipal bond outlook can certainly work in favor of bond ladder ETFs that focus on municipal exposure. This includes funds like the Northern Trust 2045 Tax-Exempt Distributing Ladder ETF (MUNC).
An actively managed fund, MUNC is constructed to provide a transparent means to decumulate via tax-exempt monthly income, through MUNC’s laddered portfolio of municipal bonds.
MUNC’s portfolio consists of 20 laddered rungs, representing the 20 calendar years between 2025 and 2045. Within each rung is a selection of municipal bonds that hits maturity during that specific calendar year. Principal from bonds hitting maturity thus pays out on an annual basis.
This format offers a consistent and streamlined means to take advantage of the opportunities within the municipal credit market. By using a fund like MUNC, investors can help reach their long-term goals through tax-advantaged income and Northern Trust’s expertise in navigating the municipal bond space.
For more news, information, and strategy, visit the Bond Ladders Content Hub.
Disclosures:
ETF investing involves risk, and principal loss is possible. Shares of any ETF are bought and sold at market price (not NAV) and are not individually redeemed from the ETF. Brokerage commissions will reduce returns. The net asset value of the Northern Trust ETFs will decline over time as income payments are made to shareholders. Individual bonds carry an obligation to fully return principal to investors at maturity, however ETFs have no such obligation.
Before investing, carefully consider the investment objectives, risks, charges, and expenses. This and other information is in the prospectus and a summary prospectus, copies of which may be obtained by visiting www.flexshares.com. Read the prospectus carefully before you invest.
Northern Funds Distributors, LLC, distributor. Northern Funds Distributors, LLC and FlexShares are not affiliated with Northern Trust.
All investments are subject to investment risk, including the possible loss of principal amount invested. Investments do not typically grow at an even rate of return and may experience negative growth. As with any type of portfolio structuring, attempting to reduce risk and increase return could, at certain times, unintentionally reduce returns.
Not FDIC insured | May lose value | No bank guarantee