Amid a series of market and policy headwinds, municipal bonds are quietly doing what they do best: Holding their ground – and offering some of the most compelling yields in years.
Despite persistent inflation, a hawkish Fed, renewed tariff uncertainty and concerns over swelling deficits, “municipals displayed relative strength, continuing to recover from April’s selloff, as improved valuations spurred consistent demand,” BlackRock said in a recent report.
“We view the current market environment as a buying opportunity ahead of seasonal strength.”
And why not?
Yields are at levels not seen since the Great Recession. For example, the taxable-equivalent yield on a 30-year, A-rated bond for investors paying the 40.8% tax rate was recently a whopping 8.68%.
“Munis have gotten extremely attractive,” Dan Genter, of Genter Capital Management, told Barron’s, adding that extraordinary yields are also appealing to taxable-bond investors as well as those not in the highest tax brackets.
It’s about the fundamentals
Reliable revenue streams from sources like taxes and utility fees continue to support many sectors, reinforcing the overall strength of municipal credit, Lord Abbett noted.
Optimum value, as usual, is in longer bonds.
“As we reach the midpoint of 2025, municipal bond fundamentals remain resilient, supported by stable revenue streams and strong credit quality,” Lord Abbett said. “At the same time, market uncertainty – driven by evolving fiscal and trade policies – has contributed to historically elevated yields.”
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When the facts are favorable
If you sense a pattern, you’re right: Fundamentals remain stable, even as shifting policy signals and broader economic uncertainty trigger short-term volatility. That dynamic played out earlier this year when surprise tariff pronouncements triggered a muni selloff. Underlying conditions in the municipal market hadn’t changed, and savvy investors seized the opportunity (“Muni Uplift After Downdraft”).
Current conditions, marked by historically attractive valuations, stable fundamentals and ample supply, don’t align often and they have created an advantageous environment for tax-free income investors.