Parametric Municipal Investing Team Reflects on 2025 Muni Market Drivers

Municipal Portfolio Manager Brian Barney, Parametric Highlights Strategy Strengths and 2026 Outlook

2025 was a year marked by intense volatility, unrelenting supply and months without key economic data. Against that backdrop, the muni market managed to finish on a positive note but lagged the performance of both Treasurys and corporates more broadly.

“Three things drove results in 2025: disciplined ladder construction to manage rate volatility, credit selection that emphasized essential‑service revenue bonds, and tax‑aware positioning that kept more of the gross return in investors’ hands,” said Brian Barney, CFA, Portfolio Manager, Parametric.  “Intermittent volatility afforded us multiple opportunities for year-round tax-loss harvesting, which is a critical component of how we deliver value.”

Parametric’s TABS municipal strategies are built on a disciplined framework that emphasizes relative value, credit selection, and rules‑based maturity structure across the municipal bond market. The strategies show tax-aware execution and turnover with no capital gains distributions since 2021.

“For 2026, we expect municipal bonds to remain compelling as reinvestment demand stays strong and rate normalization progresses,” said Barney. “We see a continued opportunity for investors seeking tax‑efficient income with disciplined, research‑driven structures.”

Barney shares key issues to watch:

• We expect the US economy to hold up well in the coming year. Muni credit quality remains sounds, but Medicaid cuts may pressure budgets and create headline risk.

• Bouts of volatility may re-emerge, considering uncertain fiscal and policy paths and potentially conflicting signals from a data-dependent Fed now weighing a 4.6% unemployment rate, inflation hovering almost a point above the Fed’s 2% target, a deceleration in payroll growth and a strong third-quarter 2025 GDP print of 4.3%

• Robust primary issuance will likely continue and potentially challenge the new record established last year. Ample demand is likely to greet it, but periods of oversupply may create attractive entry points.

• Investors are currently being rewarded for extending maturities and duration along the muni yield curve much more than they are on the Treasury yield curve. Opportunistic yield curve positioning is just one of the ways professional, active management may help improve investment returns.

Two of Parametric’s actively managed municipal strategies—the Parametric TABS Short‑Term Municipal Bond Fund (EIBSX) and the Parametric TABS 5‑15 Year Laddered Municipal Bond Fund (EILTX)—delivered competative performance in 2025 as seen in Morningstar's Muni Short and Intermediate categories. This performance showcases their multi‑year record of outperformance, tax‑efficient execution, and disciplined navigation of muni‑market volatility.

• TABS 5–15 Year Laddered Fund

  • For investors concerned about rising interest rates, a rules-based, laddered strategy may help provide them with more predictability of income and return.

  • The Fund provides a rules-based approach to municipal bond maturity allocation, with the objective of seeking current income exempt from regular federal income tax. 

• TABS Short‑Term Muni Fund

  • One of the industry's only "crossover"¹ investment products, the Fund employs an active security selection process, using relative value analysis to evaluate investments in primarily high-quality municipal and U.S. government bonds.

  • Designed for clients who may wish to mitigate risk through high quality and limited duration, or for those looking for an option to complement longer-maturity or lower-quality strategies.