Yield in Focus: Unlocking Municipal Income in 2026
January 29, 2026
Watch Time 4:00 MIN
Learn how investors can think about income opportunities in the municipal bond market as we head into 2026, following a major reset driven by lower interest rates and record new issuance. With yields still elevated and credit fundamentals remaining strong, municipal bonds are offering renewed flexibility for income-focused portfolios.
See how VanEck municipal bond ETFs—HYD, SHYD, XMPT, and MLN—provide different ways to access income, manage interest-rate sensitivity, and navigate today’s evolving muni landscape.
Today I want to talk about where we're finding the best income opportunities in the municipal bonds market as we head into 2026. After a volatile few years, 2025 marked a major shift. Interest rates finally started to move lower and a record-breaking amount of new bonds hit the market. This reset means that for the first time in a long while, income investors are actually being well paid to take on a little bit of selective risk.
And so I'll walk through three areas we think matter most. High yield munis, muni closed-end funds, and long duration munis.
HYD | VanEck High Yield Muni ETF
SHYD | VanEck Short High Yield Muni ETF
For investors seeking higher income, the VanEck High Yield Muni ETF, ticker HYD, and the VanEck Short High Yield Muni ETF, ticker SHYD, are key strategies to watch.
In 2025, we saw spreads widen in this space, meaning the extra interest you get for taking on risk increased. Now this happened mostly for technical reasons rather than the actual health of the cities or projects issuing the bonds. But essentially a record breaking $500+ billion in new bonds hit the market last year. Because there were so many options for buyers, prices reset to more attractive levels. And even though these bonds are tax exempt, their yields currently compare very well to the taxable corporate high-yield bonds.
So historically municipal bonds have much lower default rates than corporate bonds being an added bonus. So by using strategies like HYD or SHYD, you're getting attractive corporate-style yields while maintaining the stronger credit safety of the municipal market.
XMPT | VanEck Closed End Fund Muni Income ETF
Now the VanEck Closed End Fund Muni Income ETF, ticker XMPT, provides exposure to municipal closed end funds, an area that stood out as rates began to come down.
There are two main things driving these funds right now. First, they tend to hold long-term bonds, which gain the most value when interest rates fall. Second, of these funds use leverage, meaning they borrow money to invest more. So as the Fed cuts rates, the cost of these funds to borrow money goes down. So when those borrowing costs drop, more of the income generated by the portfolio can flow directly through to the investor.
Looking into 2026, we expect funds within the XMPT portfolio to continue finding opportunities to rotate and enter these higher paying bonds, making the income generation even more efficient.
MLN | VanEck Long-Muni ETF
And if you're looking at the long end of the curve, bonds that mature decades from now, the VanEck Long-Muni ETF, ticker MLN, is a primary way to play this turning point.
After some years of underperformance, long-term munis regained their leadership in 2025 as interest rate expectations shifted. And so the real story here is kind of talking more about the after-tax yield. So, as what we saw at end of 2025, long-term high-quality munis were yielding around 4 to 4.5%. Now, for a top tax bracket investor, that's roughly equivalent to earning 6 to 7% on a taxable bond. So that puts the high-quality bonds and MLN on par with, and in some cases ahead of, those riskier taxable sectors. So this allows you to choose higher returns without having to sacrifice on the credit quality.
And as we move through 2026, we believe the municipal market remains in a sweet spot. Yields are still elevated compared to the last decade, and the underlying financial health of the cities and states remain very strong.
Whether it's the high income potential of HYD, the efficiency of lever strategies like XMPT, or the tax advantage yields of MLN, municipal bonds offer a flexible toolkit for income-focused portfolios.
IMPORTANT DISCLOSURES
Source: ICE Data Indices, LLC. Yield figures referenced reflect Yield to Worst for the ICE Long AMT-Free US National Municipal Index as of 12/31/2025.
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.
Yield to worst is a measure of the lowest possible yield that can be received on a bond with an early retirement provision. Averages are market weighted. The yields presented do not represent the performance of the Fund. These statistics do not take into account fees and expenses associated with investments of the Fund.
All indices are unmanaged and include the reinvestment of all dividends, but do not reflect the payment of transaction costs, advisory fees or expenses that are associated with an investment in the Fund. Certain indices may take into account withholding taxes. An index's performance is not illustrative of the Fund's performance. Indices are not securities in which investments can be made.
ICE Long AMT-Free Broad National Municipal Index is intended to track the overall performance of the U.S. dollar denominated long-term tax-exempt bond market.
An investment in the VanEck High Yield Muni ETF (HYD) may be subject to risks which include, among others, municipal securities, high yield securities, credit, interest rate, call, private activity bonds, industrial development bond, health care bond, California, New York, market, operational, sampling, index tracking, tax, authorized participant concentration, no guarantee of active trading market, trading issues, passive management, fund shares trading, premium/discount and liquidity of fund shares, and index-related concentration risks, all of which may adversely affect the Fund. High-yield municipal bonds are subject to greater risk of loss of income and principal than higher-rated securities, and are likely to be more sensitive to adverse economic changes or individual municipal developments than those of higher-rated securities. 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 the Fund's 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.
An investment in the VanEck Short High Yield Muni ETF (SHYD) may be subject to risks which include, among others, municipal securities, credit, interest rate, high yield securities, industrial development bond, Illinois, New York, call, private activity bonds, market, operational, sampling, index tracking, tax, authorized participant concentration, no guarantee of active trading market, trading issues, passive management, fund shares trading, premium/discount and liquidity of fund shares, and index-related concentration risks, all of which may adversely affect the Fund. High-yield municipal bonds are subject to greater risk of loss of income and principal than higher-rated securities, and are likely to be more sensitive to adverse economic changes or individual municipal developments than those of higher-rated securities. 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 the Fund's 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. The Fund's assets may be concentrated in a particular sector and may be subject to more risk than investments in a diverse group of sectors.
VanEck Closed End Fund Muni Income ETF (XMPT) The Fund's performance, because it is a fund of funds, is dependent on the performance of the underlying funds. The Fund is subject to the risks of the underlying funds' investments, and the Fund's shareholders will indirectly bear the expenses of the underlying funds. In addition, at times certain segments of the market represented by the underlying funds may be out of favor and underperform other segments. The shares of a closed-end fund may trade at a discount or premium to its net asset value ("NAV"). Additionally, the securities of closed-end investment companies in which the Fund will invest may be leveraged. As a result, the Fund may be indirectly exposed to leverage through an investment in such securities. An investment in securities of closed-end investment companies that use leverage may expose the Fund to higher volatility in the market value of such securities and the possibility that the Fund's long-term returns on such securities (and, indirectly, the long-term returns of the Shares) will be diminished. An investment in the Fund may be subject to risks which include, among others, fund of funds, investing in closed-end funds, New York, Texas, market, operational, index tracking, authorized participant concentration, no guarantee of active trading market, trading issues, passive management, fund shares trading, premium/discount and liquidity of fund shares, non-diversification, and index-related concentration risks, all of which may adversely affect the Fund. A portion of the dividends you receive may be subject to the federal alternative minimum tax (AMT). There is no guarantee that Fund's income will be exempt from federal, state or local income taxes, and changes in those tax rates or in alternative minimum tax or in the tax treatment of municipal bonds may make them less attractive as investments and cause them to lose value.
An investment in the VanEck Long-Muni ETF (MLN) may be subject to risks which include, among others, municipal securities, credit, interest rate, California, New York, Texas, call, health care bond, special tax bond, market, operational, sampling, index tracking, tax, authorized participant concentration, no guarantee of active trading market, trading issues, passive management, fund shares trading, premium/discount and liquidity of fund shares, and index-related concentration risks, all of which may adversely affect the Fund. Municipal bonds may be less liquid than taxable bonds. There is no guarantee that the Fund's 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. The Fund's assets may be concentrated in a particular sector and may be subject to more risk than investments in a diverse group of sectors.
Investing involves substantial risk and high volatility, including possible loss of principal. An investor should consider the investment objective, risks, charges and expenses of a Fund carefully before investing. To obtain a prospectus and summary prospectus, which contain this and other information, call 800.826.2333 or visit vaneck.com. Please read the prospectus and summary prospectus carefully before investing.
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