• What are short-term municipal bonds, and how big is the market?
• What makes short-term municipal bonds attractive relative to other types of bonds?
• What is the VanEck Short Muni ETF (SMB)?
• How is the Fund’s index constructed?
• Why might investors be interested in short-term munis?
• How do short-term munis compare in the risk/reward profile?
• How do short-term munis perform in different rate environments?
• Who might consider allocating to short-term munis?
• How does the portfolio management team decide which bonds in the index to own?
• How can investors buy the VanEck Short Muni ETF (SMB)?

What are short-term municipal bonds, and how big is the market?

Short-term municipal bonds are debt securities issued by states, municipalities, and other local governments with investment-grade credit ratings (BBB-/Baa3 or higher) and maturities at the short end of the municipal yield curve.

They are used to finance public infrastructure and other essential projects, including transportation, utilities, and local services.

As of Q2 2025, the overall U.S. municipal bond market totaled roughly $4.3 trillion in outstanding debt, according to SIFMA. While short-term issuance represents a smaller portion of that market, it serves as a key segment for investors seeking tax-exempt income with reduced interest rate risk.

What makes short-term municipal bonds attractive relative to other types of bonds?

• Lower Duration, Lower Volatility: Short-term munis carry less sensitivity to interest rate movements, which may help reduce volatility when rates rise.
• Attractive After-Tax Income: Interest income from municipal bonds is exempt from federal income tax and may also be exempt from state and local taxes, depending on the investor’s residence.
• High Credit Quality: Investment-grade municipal bonds have historically experienced very low default rates compared to other fixed income sectors.
• Liquidity and Flexibility: The short maturity profile provides a steady stream of reinvestment opportunities, allowing investors to benefit from potential shifts in rate environments.

What is the VanEck Short Muni ETF (SMB)?

The VanEck Short Muni ETF (SMB) seeks to track the performance of the ICE Short AMT-Free Broad National Municipal Index (MBNS), which measures the U.S. dollar-denominated, short-maturity (less than six years), investment-grade, tax-exempt bond market. The fund provides diversified exposure to high-quality municipal issuers across states and sectors, aiming to deliver stable tax-exempt income with limited duration risk.

How is the Fund’s index constructed?

The ICE Short AMT-Free Broad National Municipal Index (MBNS) includes:

• Maturities: Less than six years to final maturity.
• Credit Quality: Minimum rating of Baa3/BBB- or higher, based on Moody’s, S&P, or Fitch.
• Minimum Size: At least $10 million outstanding per bond and $100 million original deal size.
• Exclusions: Private placements, variable rate demand notes, commercial paper, floating rate debt, and securities in legal default.
• Rebalancing: Monthly, with market value weighting.

This methodology ensures broad and representative exposure to the short end of the investment-grade municipal curve.

Why might investors be interested in short-term munis?

Short-term munis offer tax-exempt income at competitive yields with prices less sensitive to rate changes.

In periods of rate uncertainty or expected policy easing, short-term munis may benefit from:

• Faster price recovery as bonds roll down the curve.
• Attractive reinvestment opportunities if yields remain elevated.
• Potential to serve as a defensive core within a tax-exempt income strategy.

Historically, this segment has offered a compelling blend of income and stability, particularly when compared to cash or Treasuries on a taxable-equivalent yield basis.

How do short-term munis compare in the risk/reward profile?

Short-term municipal bonds generally offer lower risk and more stable returns than longer-duration or lower-rated fixed income assets.

From 2019 to 2024, short-term investment-grade munis historically demonstrated:

• Minimal default risk (average 5-year default rate below 0.1%).
• Strong risk-adjusted returns, outperforming many taxable short-duration peers on a tax-equivalent basis.

How do short-term munis perform in different rate environments?

Short-term munis have historically held up well in rising-rate environments due to their limited duration and frequent reinvestment opportunities. During easing cycles, they can experience modest price gains as yields decline. This balance helps support steady, tax-efficient income through different phases of the rate cycle.

Who might consider allocating to short-term munis?

Short-term munis can suit investors seeking tax-exempt income with limited volatility and principal stability. Examples include high-net-worth individuals, retirees, or those managing liquidity within a broader fixed income portfolio. They can also serve as a core allocation for investors looking to stay invested while maintaining flexibility to adjust duration as market conditions change.

How does the portfolio management team decide which bonds in the index to own?

SMB uses a sampling approach similar to other VanEck muni ETFs. The team selects a representative basket of bonds that match the index’s risk and return characteristics, optimizing for liquidity, transaction cost efficiency, and credit diversification. This approach seeks to minimize tracking error while maintaining the fund’s short-duration profile and income consistency.

Source: VanEck.

How can investors buy the VanEck Short Muni ETF (SMB)?

Learn more here.

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