According to Bond Buyer, municipal bond issuance grew in the month of May by 3.6% versus a year ago. It creates an opportunity for fixed income investors to get exposure if they haven’t already via a fund like the Vanguard Tax-Exempt Bond ETF (VTEB ).
VTEB provides an easy ingress for income seekers to add muni exposure without having to research the vast universe of muni bonds available. The fund provides all-encompassing exposure by tracking the Standard & Poor’s National AMT-Free Municipal Bond Index. This index encompasses the investment-grade segment of the U.S. municipal bond market, giving investors only quality debt issues, which is important during times of market uncertainty like now.
Furthermore, VTEB is heavily diversified with the fund holding under just 9,800 bonds as of April 30. The 30-day SEC yield is at 3.91%. Of course, a prime feature of munis is their tax-free income. VTEB includes debt issues from state or local governments or agencies whose interests are exempt from U.S. federal income taxes, and the federal alternative minimum tax.
For the cost conscious, VTEB also features a low expense ratio of 0.03%. This paltry cost falls far below the category average of 0.35% and the FactSet segment average of 0.64% as indicated by ETF Database.
Fundamentally Sound
As mentioned, market uncertainty is swirling in the bond market just as much as the equities market. Along with high interest rates and tariff news, recession forecasts are also circulating in the 24-hour news cycle, further adding to the wall of worry. The potential for Treasuries slumping following a Moody’s downgrade and the risky proposition of corporate bonds in a recessionary environment could have fixed income investors scrambling for alternatives. One option is munis, which remain fundamentally sound.
“As we reach the midpoint of 2025, municipal bond fundamentals remain resilient, supported by stable revenue streams and strong credit quality,” noted global asset firm Lord Abbett. “At the same time, market uncertainty—driven by evolving fiscal and trade policies—has contributed to historically elevated yields. These conditions may present a compelling opportunity for investors to potentially enhance tax-equivalent income.”
Lord Abbett noted in April amid the tariff sell-offs that municipal bonds were resilient amid the volatility. In a time when fixed income investors are still looking to maximize yield opportunities in today’s elevated rate environment while also balancing credit risk in the face of uncertainty, munis offer a compelling option.
For more news, information, and analysis, visit the Fixed Income Channel.
