As bond markets grumble and municipal bond yields climb to head-turning levels, some investors may still be holding out for even more.

While we understand the instinct, we can’t help but caution against what decades of experience has taught us: No one can predict where yields are headed over the long term, and waiting has a cost.

A closer look at the forces shaping today’s market shows why staying on the sidelines can mean passing up unusually attractive opportunities.

Yields up sharply

The recent rise in municipal yields has been sharp, with benchmark 30-year yields rising 18 basis points in just one week.

This comes as yields are rising across the broader bond markets. Treasury yields have climbed sharply as investors weigh heavy government borrowing and the prospect that interest rates could remain higher for longer. The Federal Reserve added to the turbulence in September when it raised its benchmark rate for the first time since 2023.

In a recent report, Nuveen points to rising Treasury rates, tax-loss selling and supply-and-demand conditions as factors driving muni prices lower (and, therefore, yields higher), noting that 30-year municipal yields reached their highest levels since 2011.

Focus on the long term, Nuveen suggests.

“Despite the pressure, the picture is more encouraging than headlines suggest, in our view. For the first time in years, the after-tax income of long-term municipal bonds now exceeds what similar corporate bonds offer.”

Beyond volatility and fluctuating market values, “we believe this presents a window of opportunity to lock-in historically attractive yields for both income- and total return-oriented investors willing to look further out on the curve,” the firm says.

Meantime, Schwab echoes that analysis, attributing much of the recent municipal selloff to rising Treasury yields while noting – importantly – that municipal credit quality remains relatively stable.

Cost of waiting

Could yields go higher? Of course. In addition to the Fed bump in rates earlier this month, analysts expect another increase before year-end.

But the Fed directly controls short-term rates, not longer-term municipal bond yields. Waiting for another Fed move offers no assurance that the municipal yields available afterward will be higher.

In The Wall Street Journal, economist Burton Malkiel recently called municipal bonds “unusually attractive today.” As an example, he notes that “AA-rated long-term bonds from high-tax states like New York, New Jersey and California can be purchased at yields of 5.00%. This yield would be equivalent to a pretax yield of double that amount for an investor in the highest tax bracket.”

For buy-and-hold investors, it’s also important to consider the cost of waiting – a central principle of ours that we discuss regularly (e.g. “Why Are These Muni Pros Gushing?”).

Every month spent waiting for a potentially higher yield is also a month in which today’s tax-exempt income goes uncollected. And if yields fall instead of rise, the opportunity to lock in today’s rates will be gone.

Municipal bond investors don’t need to catch the absolute peak in yields to find compelling value in today’s municipal bond market. They just need to keep their interest clock ticking.