Municipal debt and bond-related exchange traded funds have been used as a relatively stable fixed-income stream for many investment portfolios.
Since muni bond interest is exempt from federal taxes, muni ETFs are a good way for investors seeking tax-exempt income, especially those in higher tax brackets. Due to its tax-exempt status, the asset category is also best utilized in taxable accounts.
Related: Low Yields Haven’t Deterred Muni Bond ETF Investors
The tax-exempt status also creates high demand for municipal bonds. Consequently, the perceived bond yields are typically lower than their taxable counterparts.
For instance, the iShares National AMT-Free Muni Bond ETF (NYSEArca: MUB), the largest muni-related ETF, has a 1.32% 30-day SEC yield but comes with a 2.33% taxable equivalent 30-day SEC yield for those in the highest income bracket.