Many fixed income investors are enthusiastic about the bond market’s prospects against the backdrop of Federal Reserve easing. But municipal bonds are setting the world ablaze this year.
Bonds issued by cities and states, and ETFs such as the ALPS Intermediate Municipal Bond ETF (MNBD), have been hamstrung by a variety of factors. These include massive issuance but waning demand, narrowing credit spreads and lagging performances relative to Treasuries of comparable durations. Combine those factors and it might appear as though MNBD is dealing with headwinds.
Some bond market observers believe the darkest clouds for municipal debt have past. That opportunity beckons with these bonds and ETFs like MNBD. Some encouraging clues are found by way of the 30-year muni/Treasury ratio.
“The M/T ratio historically hovers near 80% to [90%. Anything over 100% suggests] that munis are a very good deal as they’re yielding more than a comparable US Treasury,” noted Morningstar analyst Elizabeth Foos. “The M/T ratio on the 30-year part of the curve pushed toward the higher end of its historical range, closer to 90%–95%, going into the back half of the [year. That indicates] a good value for muni investors willing to take on some additional interest rate risk.”
MNBD Has Right Ingredients
One of MNBD’s unsung advantages is that the ETF is actively managed, implying some level of flexibility in a category where advisors and investors have long leaned into passive funds. MNBD’s flexibility is noteworthy at a time when the muni yield curve flattened a bit following the Fed’s September rate reduction.
“Experienced municipal-bond portfolio managers still see some attractive values there, however,” added Foos. “Indeed, for patient investors, these shifts in the muni yield curve may still present some compelling opportunities as managers often view market volatility as an excellent time to uncover attractive valuations and put money to work, especially when a certain part of the market feels unloved.”
MNBD’s status as an active ETF is paying dividends for investors this year as the fund is beating the largest ETF in the category. That could be a sign that MNBD is ready to join an illustrious groups of active muni ETFs that have held up well across a variety of interest rate cycles.
“That was also the case through 2022’s market as rates spiked and when munis sold off at the end of 2020’s turbulent first quarter. These funds also fared well over longer periods, reporting volatility-adjusted results that topped most peers over the trailing five- and 10-year periods ended Aug. 31, 2025,” concluded Foos.
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