Municipal Bond ETFs
Municipal bonds — "munis" — are debt securities issued by US state and local governments to fund infrastructure, schools, hospitals, and other public projects. Interest income from most munis is exempt from federal income tax and often from state income tax in the issuing state, making them especially attractive for high-income investors in taxable accounts.
Maturity Ladder
iShares Short-Term Muni Bond
iShares
iShares National Muni Bond
iShares
SPDR Nuveen Bloomberg Muni Bond
SPDR
Vanguard Tax-Exempt Bond
Vanguard
Frequently Asked Questions
Are municipal bond ETFs tax-free?▼
Interest income from most municipal bonds is exempt from FEDERAL income tax. It may also be exempt from state and local tax if the bonds were issued in your state of residence. Capital gains from selling the ETF are taxed normally. Some munis (e.g., AMT-subject issues) can trigger the Alternative Minimum Tax.
Who should buy municipal bond ETFs?▼
Investors in high federal tax brackets, holding in taxable (non-retirement) accounts. The tax-equivalent yield — what you would need to earn on a taxable bond to net the same after-tax return as a muni — is often higher than Treasuries or corporates for high-income earners. In retirement accounts, where everything is tax-deferred or tax-free already, muni funds offer no tax advantage.
How do I calculate tax-equivalent yield on a muni ETF?▼
Divide the muni yield by (1 - your marginal federal tax rate). Example: a 4% muni yield to a 37% bracket investor is equivalent to a 4 / (1 - 0.37) = 6.35% taxable yield — better than most investment-grade corporate bonds.
Other Fixed Income Categories
Treasury yields and ETFs from 1-month bills to 30-year bonds.
Sovereign bond ETFs covering developed-market governments outside the US.
Total-market bond ETFs spanning Treasuries, corporates, and mortgages.
Investment-grade corporate debt, sliced by maturity.
Below-investment-grade corporate debt with elevated yields.
Treasuries whose principal adjusts with CPI inflation.
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