July is supposed to be a good month for municipal bonds. Historically, it is one of the strongest periods for state and local government debt, as coupon payments and maturing bonds put cash back into investors’ hands and demand naturally outpaces supply. Not this year.
US state and local government debt is tracking toward its weakest July performance since 2003, a stretch of more than two decades. The culprits are familiar: rising benchmark Treasury yields making existing bonds less attractive, and a heavy wave of new issuance competing for the same pool of investor dollars.
Why this July is different
The $4 trillion municipal bond market ran a reasonably decent first half of 2026. The Bloomberg Municipal Bond Index posted a return of +0.96% in June and closed out the second quarter at +2.50%. Then July arrived.
When Treasury yields rise, muni yields have to follow to stay competitive. That means the price of existing muni bonds falls. Layer on top of that a surge in new bond issuance from states and cities trying to lock in financing, and you get a supply-demand imbalance that pushes prices down further.
The backdrop matters here. Total US government debt now exceeds $39 trillion at the federal level, and that figure shapes the entire fixed-income landscape. When the federal government runs large deficits and issues vast quantities of Treasury bonds, it sets the risk-free rate that every other bond in the market has to price off.
The Bitcoin bond that almost was
New Hampshire’s Business Finance Authority proposed a $100 million Bitcoin-backed municipal bond. The idea made it through initial approvals in late 2025. On July 9, 2026, the state executive council voted 3-2 to reject it.
The rejection is worth sitting with for a moment. Three votes killed it, and two votes would have sent a $100 million Bitcoin-backed muni bond into the market.
Bitcoin’s price history played a role in the skepticism. The asset hit a peak above $126,000 in October 2025 before pulling back considerably. For a bond structure that relies on collateral holding its value, that kind of volatility is an uncomfortable feature.