🏛️ Municipal Bond ETFs
🏛️ Municipal Bond ETFs
Municipal bonds (“munis”) are debt issued by state and local governments. Their key feature: interest is typically exempt from federal income tax — and often state tax too if you buy in-state.
Tax-equivalent yield
To compare munis to taxable bonds:
Tax-equivalent yield = Muni yield / (1 - marginal tax rate)| Tax Bracket | 4% Muni = |
|---|---|
| 24% | 5.26% taxable |
| 32% | 5.88% taxable |
| 37% | 6.35% taxable |
Double tax exemption
High-tax state residents get an extra benefit from in-state munis:
| State | State Rate | 4% Muni = |
|---|---|---|
| California | 13.3% | 8.05% taxable |
| New York | 10.9% | 7.68% taxable |
| New Jersey | 10.75% | 7.66% taxable |
ETFs compared
National Munis
| ETF | Duration | Expense | Best For |
|---|---|---|---|
| MUB | ~6.1 years | 0.07% | Broad national |
| VTEB | ~5.6 years | 0.05% | Lowest cost |
| SHM | ~2.6 years | 0.20% | Short-term |
High-Yield and Long-Duration
| ETF | Duration | Expense | Best For |
|---|---|---|---|
| HYD | ~8.7 years | 0.32% | High-yield munis |
| MLN | ~13.4 years | 0.24% | Long-duration |
State-Specific
| ETF | State | Expense |
|---|---|---|
| CMF | California | 0.25% |
| NYF | New York | 0.25% |
When munis make sense
| Situation | Recommendation |
|---|---|
| High federal tax bracket (32%+) | Strong candidate |
| High state taxes + federal | Very strong (use state-specific) |
| Tax-advantaged account (IRA) | No benefit — use taxable bonds |
| Low tax bracket | Usually not worth it |
Never hold munis in IRAs or 401(k)s. The tax exemption is wasted in tax-advantaged accounts.
Quick reference
| Goal | ETF |
|---|---|
| Broad national munis | MUB, VTEB |
| Short-duration munis | SHM |
| High-yield munis | HYD |
| Long-duration munis | MLN |
| California residents | CMF |
| New York residents | NYF |
Munis are a tax play — their value depends entirely on your marginal tax rate. Calculate your tax-equivalent yield before buying.
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