Summary

• New issuance of municipal bonds exceeded the average seen in the past few years during the first quarter of 2026.
• The Franklin High Yield SMA Composite outperformed its benchmark, the Bloomberg Municipal Bond Index, over the quarter net of fees.
• An overweight allocation to bonds with no external credit rating contributed to performance, as did overweight positions in BBB and A rated bonds, as lower-rated issues fared better.
• Franklin Templeton remains focused on issuers that possess strong fiscal underpinnings by drawing on the expertise of the firm's dedicated municipal research team.
• Municipal bond supply is projected to reach historical highs in 2026, primarily driven by infrastructure capital requirements that can no longer depend on previous government stimulus programs.

Key Takeaways

• Markets: In the first quarter of 2026, new issuance of municipal (MUNI) bonds exceeded the average seen in the past few years. The war in the Middle East which began at the