Why Intermediate & Long-Term Muni Yields are Compelling Right Now
Key Takeaways
- Municipal yields remain elevated: Intermediate- and long-term municipal bonds are offering higher tax-exempt income following the recent repricing in interest rates.
- Relative valuations favor munis versus Treasuries: Elevated Muni/Treasury ratios and tax-equivalent yields may make municipal bonds attractive relative to taxable fixed-income alternatives, particularly for investors in higher tax brackets.
- Credit quality and selectivity remain important: With risks from additional rate increases, new-issue supply, and differences in issuer credit quality, a selective approach focused on higher-quality municipal bonds may help manage risk.
The Rate Backdrop
On September 16th, the Federal Open Market Committee (FOMC) raised the Fed Funds rate by 25 basis points to 3.75%–4.00%, its first hike since 2023. The FOMC voted unanimously, 12-0, citing the strength of the economy, employment trends, and the inflation outlook.
The Fed’s renewed focus on containing above-target inflation has pushed Treasury and municipal yields to multi-year highs, and the long end of the tax-exempt curve looks especially attractive after repricing higher. Twenty-year A-rated muni yields have recently climbed to roughly 4.90%, their highest level in nearly 15 years. At these levels, investors capture more income today and stand to benefit from capital appreciation if inflation moderates and the Fed eventually shifts toward a less restrictive stance, allowing long-term yields to decline.
Relative Value: Munis vs. Treasuries
The Muni/Treasury ratio is flashing one of the clearest “buy” signals the asset class has offered in the past year. At roughly 95%, the 20-year ratio sits near the top of its five-year range, underscoring how attractive munis are relative to Treasuries today. Investors are capturing not only a compelling absolute tax-exempt yield, but also an unusually high yield relative to taxable alternatives.
The result is a rare double tailwind. A 20-year A muni yielding roughly 4.90% translates to a taxable-equivalent yield (TEY) of about 8.27% for an investor in the 40.8% federal bracket, a level that is genuinely hard to find elsewhere in fixed income without taking on meaningfully more credit or duration risk.
For investors in high-tax states, the opportunity is even more pronounced, since in-state munis can add a state tax exemption that further lifts the tax-equivalent yield. That same 4.90% 20-year A muni translates to a TEY of 9.80% for an investor facing an all-in marginal rate of 50% (for example, in CA, NY, NJ, OR, MN, or MA).
When muni yields are elevated versus Treasuries on a relative basis, investors are effectively paid a relative-value premium and a tax-exemption premium at the same time, a combination that historically has not lasted long once the market recognizes it.
Tax-Equivalent Yields by Maturity
| Maturity | Approx. A Muni Yield* | TEY @ 37%* | TEY @ 40.8%* | TEY @ 50%* |
| 10-year | 4.00 | 6.35 | 6.75 | 8.00 |
| 15-year | 4.60 | 7.30 | 7.77 | 9.20 |
| 20-year | 4.90 | 7.77 | 8.27 | 9.80 |
Risks & Positioning
This compensation, delivered through both the rate backdrop and the TEY, is arriving while broad credit quality remains solid. The principal risks are further Fed hikes pressuring bond prices near term, heavy new-issue supply, and widening credit dispersion among issuers.
Each argues for staying in high-quality, intermediate-to-long maturities rather than reaching indiscriminately for yield or duration. We remain focused on higher-quality issuers and stay selective across sectors, avoiding lower-rated, more idiosyncratic credits where the added risk is not worth it.
Bottom Line
Longer-maturity (15–30 year) municipal bonds today offer a rare combination of elevated tax-exempt income, attractive relative value, and capital appreciation potential.