Why U.S. Munis Are Suddenly Hot: Tax‑Equivalent Yields Top 8%

U.S. municipal bonds are back in vogue as income‑hungry investors rediscover the appeal of tax‑advantaged yields. According to a new report from BlackRock, the tax‑equivalent yield on munis for investors in the top federal income‑tax bracket climbed above 8% as of September 30. That puts them ahead of many corporate bonds and high‑dividend stocks on an after‑tax basis.

Interest income on most municipal issues is exempt from U.S. federal income tax, and often from state and local taxes for in‑state residents. This makes them particularly attractive to high‑earners, especially now that headline yields across the muni curve have reset higher in the wake of the recent rate shock. BlackRock’s municipal‑bond chief describes today’s market as a rare opportunity to lock in “historically attractive income,” regardless of the precise path of interest rates from here.

The renewed enthusiasm does not mean munis are risk‑free. Investors still need to consider the fiscal health of individual states and cities, as well as the potential mark‑to‑market losses if long‑term rates rise further. As a result, many global buyers are choosing diversified mutual funds and ETFs that spread exposure across hundreds of issuers instead of trying to pick single bonds on their own.