Why Munis Still Make Sense: Compelling Yields in a Changing Landscape
May 14, 2025
Read Time 2 MIN
Back in March, we wrote that the tax-exemption status of municipal bonds faced growing uncertainty as policymakers weighed major tax changes. While risks loomed, the case for munis remained grounded in one thing: compelling yields.
As of early May, the theme is unchanged—but the backdrop has evolved.
Flows Affirm Investor Appetite
Despite some yield compression in recent weeks, investors continue to take advantage of attractive municipal bond valuations. Net flows remain solid: municipal bond ETFs saw $2.7 billion in inflows in April alone. The market may not be flashing bargain-bin yields like a month ago, but relative value persists—particularly for those seeking income without overcommitting to duration or credit risk.
Largest April on Record for Muni ETF Flows (2011-2025)
Source: Morningstar as of 4/30/25.
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Supply Swells, Demand Grows Stronger
New issuance is robust. According to CreditSights, supply in April ran 58% above the 52-week average, and the May calendar suggests this pace will continue. But importantly, demand is rising to meet it. May alone brings an estimated $38 billion of reinvestment cash from maturities, calls, and coupons. After subtracting new supply, this nets to roughly $16 billion in positive technicals for the month.
History and Policy May Align for Munis
Longer term, the market may find tailwinds from the macro landscape. Municipal Market Analytics (MMA) notes that since 1966, a year of negative municipal returns (like 2024) is historically followed by a positive 10-year total return. If a slowing economy or trade pressures prompt the Fed to cut rates, bonds—especially tax-exempt—stand to benefit.
Compelling Yields Amid Policy Overhang
We return to where we began: the theme is unchanged. Yields remain attractive. A 10-year AAA muni yielding 3.25% offers a taxable-equivalent yield (TEY) of 5% for those in the top tax bracket. A 30-year AAA at 4.37% equates to 7.38% TEY. Even as discussions around tax exemption continue in Washington, the current muni landscape offers meaningful income opportunities, especially for investors navigating uncertainty.
Yields Attractive Amid Policy Uncertainty
Source: Bloomberg as of 5/8/2025. Municipal (AAA): BVAL Municipal AAA Yield Curve (Callable) - The curve is populated with high quality US municipal bonds with an average rating of AAA from Moody's and S&P. Municipal (A): US General Obligation A+ A A- Muni BVAL Yield Curve - The BVAL curve is populated with pricing from uninsured A+, A, and A rated General Obligation bonds. Both are calculated using *Taxable equivalent yield @ 40.8% tax rate.
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Important Disclosures
Definitions
Taxable-Equivalent Yield - The yield a taxable bond must earn to match–after federal taxes–the yield available on a tax-exempt municipal bond (excluding AMT).
Please note that VanEck may offer investment products that invest in the asset class(es) or industries included in this blog.
This is not an offer to buy or sell, or a recommendation to buy or sell any of the securities, financial instruments or digital assets mentioned herein. The information presented does not involve the rendering of personalized investment, financial, legal, tax advice, or any call to action. Certain statements contained herein may constitute projections, forecasts and other forward-looking statements, which do not reflect actual results, are for illustrative purposes only, are valid as of the date of this communication, and are subject to change without notice. Actual future performance of any assets or industries mentioned are unknown. Information provided by third party sources are believed to be reliable and have not been independently verified for accuracy or completeness and cannot be guaranteed. VanEck does not guarantee the accuracy of third party data. The information herein represents the opinion of the author(s), but not necessarily those of VanEck or its other employees.
Municipal bonds may be less liquid than taxable bonds. A portion of the dividends you receive may be subject to the federal alternative minimum tax (AMT). There is no guarantee that municipal bonds’ income will be exempt from federal, state or local income taxes, and changes in those tax rates or in alternative minimum tax rates or in the tax treatment of municipal bonds may make them less attractive as investments and cause them to lose value. Capital gains, if any, are subject to capital gains tax. When interest rates rise, bond prices fall.
All investing is subject to risk, including the possible loss of the money you invest. As with any investment strategy, there is no guarantee that investment objectives will be met and investors may lose money. Diversification does not ensure a profit or protect against a loss in a declining market. Past performance is no guarantee of future results.
© Van Eck Associates Corporation.
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Important Disclosures
Definitions
Taxable-Equivalent Yield - The yield a taxable bond must earn to match–after federal taxes–the yield available on a tax-exempt municipal bond (excluding AMT).
Please note that VanEck may offer investment products that invest in the asset class(es) or industries included in this blog.
This is not an offer to buy or sell, or a recommendation to buy or sell any of the securities, financial instruments or digital assets mentioned herein. The information presented does not involve the rendering of personalized investment, financial, legal, tax advice, or any call to action. Certain statements contained herein may constitute projections, forecasts and other forward-looking statements, which do not reflect actual results, are for illustrative purposes only, are valid as of the date of this communication, and are subject to change without notice. Actual future performance of any assets or industries mentioned are unknown. Information provided by third party sources are believed to be reliable and have not been independently verified for accuracy or completeness and cannot be guaranteed. VanEck does not guarantee the accuracy of third party data. The information herein represents the opinion of the author(s), but not necessarily those of VanEck or its other employees.
Municipal bonds may be less liquid than taxable bonds. A portion of the dividends you receive may be subject to the federal alternative minimum tax (AMT). There is no guarantee that municipal bonds’ income will be exempt from federal, state or local income taxes, and changes in those tax rates or in alternative minimum tax rates or in the tax treatment of municipal bonds may make them less attractive as investments and cause them to lose value. Capital gains, if any, are subject to capital gains tax. When interest rates rise, bond prices fall.
All investing is subject to risk, including the possible loss of the money you invest. As with any investment strategy, there is no guarantee that investment objectives will be met and investors may lose money. Diversification does not ensure a profit or protect against a loss in a declining market. Past performance is no guarantee of future results.
© Van Eck Associates Corporation.