Long-Term Munis: A Rare Window to Lock in Attractive Yields
By Kevin E. Strauss, Partner; &
Zachary Smith, Associate Portfolio Manager
đź’ˇKey Takeaways
• Long-term municipal bonds (15–30 years) are offering historically high tax-equivalent yields, often 8–9% for high-income investors.
• Yield spreads between long and short-term munis have widened to levels not seen in over a decade, making duration extension particularly attractive.
• Strong credit fundamentals, constrained supply, and potential Fed rate cuts create a favorable backdrop for locking in long-term tax-exempt income.
In today’s market environment, longer maturity tax-exempt municipal bonds are offering a compelling opportunity for investors, especially when compared to their shorter-term counterparts. While yields have risen meaningfully over the last 5 years in response to the Fed’s rate hikes and inflation, the relative value now lies in the long end of the curve (15+ years)—where yields are not only historically elevated, but also more attractive on a risk-adjusted, after-tax basis.
One key factor driving this attractiveness is the steepness in the municipal yield curve relative to Treasuries. While the Treasury yield curve is modestly upward sloping, the muni curve is even steeper, providing investors significant incremental yield for extending duration. For example, the spread between 2-year muni bonds and 10 year or 20-year single-A municipal bonds has widened significantly, offering a meaningful pickup in tax-equivalent yield—particularly for investors in high tax brackets. In many cases, 20 to 30-year AA or A-rated municipal bonds now offer tax-equivalent yields approaching 8% – 9%, which is much higher than similarly rated corporate bonds on a tax equivalent basis. For some investors, these gross returns are competitive to owning equities when adjusting for risk and volatility.
Moreover, long-term municipals offer strong value for buy-and-hold investors seeking long-term income stability. The supply/demand backdrop also supports longer maturity bonds: new issuance remains constrained, especially on the long end, while demand from insurance companies, pensions, and high-net-worth investors is returning amid falling inflation. Furthermore, expectations of eventual Fed rate cuts and historically light seasonal supply could support prices and compress spreads over time.
In recent months, the Muni yield to Treasury yield ratios, particularly on the long end, have climbed to the high-end of historical averages. For longer maturities, ratios are above 100%, suggesting that investors are being compensated with higher tax-free yields than they would earn owning taxable Treasuries. For comparison, 1–5-year munis are currently trading at or below 70% of Treasuries. Single-A, 3-yr muni yields are trading around 67% of 3-year treasuries, while 5-year muni bonds are trading near 70% of Treasuries. This metric alone underscores the unique opportunity and unusually competitive after-tax returns that are present in long-dated munis. To further highlight the attractiveness of longer-term munis, the 10-year average yield difference between 20-year munis and 5-year munis is 1.08%. Today the spread has widened significantly to 2.12%, which is equivalent to more than 4% on a pre-tax basis for many high-income investors. This is the first time in more than 10 years that this spread has exceeded 2%.
Muni Yields as a Percentage of Treasury Yields
Source: 2025 Bloomberg Finance L.P.
From a duration standpoint, locking in attractive yields today on high-quality municipal credits with
15–30-year maturities may be a prudent move, especially as the Fed appears to be pivoting towards more accommodative policy in the near-term. Front-end munis face reinvestment risk if yields fall or stagnate (risk that maturing muni proceeds are reinvested at a lower yield). Extending duration but limiting risk by purchasing bonds with 10-year call protection will dampen potential cash flow volatility.
In summary, the long maturity (15-30 yr) municipal bonds today offer a rare combination of elevated tax-exempt income, attractive relative value, and capital appreciation potential. Credit fundamentals remain strong, supported by positive state finances, rainy‑day funds and stable tax collections. For investors in a high tax bracket that are less concerned with mark-to-market risk due to interest rate fluctuations, longer-term municipals may currently represent the most compelling corner of the fixed income universe.
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