The two largest municipal bond exchange-traded funds just recorded their largest weekly inflows ever, shortly after a bond rout fueled outflows in other muni funds.
Last week, BlackRock Inc.’s $46 billion iShares National Muni Bond ETF attracted about $1.2 billion, while the $47 billion Vanguard Tax-Exempt Bond Index ETF saw $1.7 billion in inflows, according to data compiled by Bloomberg.
An attractive yield environment is likely behind the interest in muni funds, according to Nathan Will, Vanguard Group’s head of municipal credit research. Yields have jumped, and for many investors, it’s hard to find tax-equivalent yields elsewhere in other fixed income markets, he said. Valuations have also become more attractive relative to taxable bonds.
See more: Do Munis Still Deserve a Place in Your Portfolio?
“Against that backdrop, investors may be viewing periods of market volatility as an opportunity to add exposure to a high-quality, tax-advantaged asset class,” Will said.
On Monday, ten-year benchmark muni yields climbed to their highest since April 2025, and earlier this month, 30-year benchmark yields hit their highest since 2011, as rising Treasury rates and heavy new issuance pressured the market.
Chris Brigati, chief investment officer at SWBC Investment Services, said the demand could be attributed to tax-loss harvesting, with investors using the ETF funds “as a temporary way to stay invested in the asset class without having to come up with the ideal swap candidate immediately.”
Although performance in the muni market has been faltering, with year-to-date returns down about 1.9%, Brigati said that the weakness “offers investors the chance to harvest losses that can most likely be used to offset gains in other asset classes like equities.”
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