After falling steadily for most of the past 12 months, mortgage rates rebounded with the outbreak of the Iran war, sending the spring homebuying season off to a sluggish start. Though it slipped below 6% toward the end of February, the rate on 30-year fixed-rate mortgages ended the quarter at 6.47%, and this uptick combined with economic uncertainty appears to have weighed on housing market activity thus far in 2026.¹

Notably, RTLs are backed by hard assets whose values are transparent and subject to frequent validation through the sale of similar properties, limiting the potential for an abrupt markdown by lenders. We see significant opportunity to lend capital to experienced developers that can renovate homes within existing communities with desirable characteristics like top school districts, walkability and proximity to jobs, with a focus on markets that exhibit stronger-than-average household incomes, population growth and housing supply constraints relative to the broader US—attributes that, in our view, support more resilient demand and home values. We believe this reinforces the importance of distinguishing between the national “housing market” and a more localized “market of homes.”

During the first quarter, municipal issuance set another new record with $119 billion in tax-exempt bonds and $128 billion overall.¹ In the face of complicated and rapidly evolving dynamics that included the outbreak of war, spiking energy prices, renewed inflation concerns, whipsawing policy expectations and acute Treasury volatility, we were impressed by the municipal market’s ability to absorb significant issuance; in our view, it is a testament to steady investor interest in the asset class and the appealing yields on offer.

Municipal bond yields mostly followed the trend of Treasuries during the first quarter, easing across the curve early in the year before rising sharply in March as a shock to the global energy supply chain brought on by the war with Iran sent energy prices sharply higher and raised concerns about renewed inflation. The end result was a bear steepening of the muni curve in which longer-term yields increased more than short-term yields, and, as shown in the chart below, the 30-year municipal-to-Treasury yield ratio increased to a nearly two-year high.²

Meanwhile, issuer fundamentals continue to be supportive, as state budgets for fiscal 2026 overall reflect a healthy environment, general fund balances remain well above the historical average,³ and pension funding continued to improve.⁴ These dynamics have supported muni bond ratings activity, which has remained positive even as the ratio of upgrades to downgrades continued to moderate.⁵ Both defaults and first-time distressed debt remained very low in the first quarter.⁶