How to Target the Sweet Spot of the Muni Yield Curve | ETF Trends

By John Patrick Lee, CFA
Product Manager

The muni bond market’s yield curve is inverted in the short end but positively sloped and steep in the intermediate part, providing attractive roll yield for those who target these maturities.

What is Roll Yield?

Roll yield is a term used to describe the increase in price that an investor can receive as a bond’s maturity ages. When a bond gets closer to its final maturity, its yield typically decreases, causing an increase in its price. This price appreciation is known as roll yield and is a desirable feature for investors, especially when targeting intermediate-term bonds with wider yield differentials between maturities. This strategy can potentially generate alpha and enhance an investor’s total return.

How Can I Use Roll Yield to Boost Return?

The muni yield curve is an important indicator of the health of the municipal bond market and the broader economy. The muni yield curve has recently become inverted in the short end, meaning that yields of some longer-dated municipal bonds are lower than those of shorter-term bonds. However, the intermediate part of the curve remains positively sloped and steep, providing attractive roll yield for investors who target these maturities. Steepness refers to the degree of absolute difference between yields of different maturities.

Max Roll Yield in the Steepest Part of the Curve

Max Roll Yield in the Steepest Part of the Curve

Source: VanEck as of 3/31/2023. Past performance is no guarantee of future results.

As bonds move closer to final maturity, they typically will have a lower yield each year as they roll down the curve. When a bond’s yield drops, its price increases (yield and price move in the opposite direction). A strategy targeting the steepest part of the curve may benefit by accessing this roll-yield effect and the inherent price boost that occurs as bonds age. Despite an inverted curve at the short end of the curve, the majority of the intermediate section remains steep.

How do Intermediate-Term Bonds Enhance the Roll Yield Effect?

The VanEck Intermediate Muni ETF (ITM) targets bonds with maturities of 6 through 17 years. Municipal bonds in this maturity range have historically provided a greater roll yield effect due to these wider yield differentials between maturities. Roll yield refers to the amount of price appreciation that occurs as its maturity ages. Intermediate-term bonds’ higher-than-average spreads between maturities can generate alpha, as the bigger spreads between yields lead to larger price moves. In addition to the benefits of tax-free income, a targeted allocation to this part of the municipal yield curve may help boost an investor’s total return due to this enhanced, historically-persistent feature.

Originally published by VanEck on May 16, 2023.

For more news, information, and analysis, visit the Beyond Basic Beta Channel.


This is not an offer to buy or sell, or a recommendation to buy or sell any of the securities/financial instruments mentioned herein. The information presented does not involve the rendering of personalized investment, financial, legal, or tax advice. Certain statements contained herein may constitute projections, forecasts and other forward looking statements, which do not reflect actual results, are valid as of the date of this communication and subject to change without notice. Information provided by third party sources are believed to be reliable and have not been independently verified for accuracy or completeness and cannot be guaranteed. VanEck does not guarantee the accuracy of third party data. The information herein represents the opinion of the author(s), but not necessarily those of VanEck or its employees.

The VanEck Intermediate Muni ETF (ITM) seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the ICE Intermediate AMT-Free Broad National Municipal Index (MBNI), which is intended to track the overall performance of the U.S. dollar-denominated intermediate-term tax-exempt bond market.

An investment in the VanEck Intermediate Muni ETF (ITM) may be subject to risks which include, among others, municipal securities, credit, interest rate, call risk, California, New York, special tax bond, market, operational, sampling, index tracking, tax, authorized participant concentration, no guarantee of active trading, trading issues, passive management, Fund Shares Trading, Premium/Discount Risk and Liquidity Risk of Fund Shares, and concentration risks, all of which may adversely affect the Fund.; The Fund’s assets may be concentrated in a particular sector and may be subject to more risk than investments in a diverse group of sectors. Municipal bonds may be less liquid than taxable bonds. There is no guarantee that the Fund’s income will be exempt from federal, state or local income taxes, and changes in those tax rates or in alternative minimum tax (AMT) rates or in the tax treatment of municipal bonds may make them less attractive as investments and cause them to lose value. Capital gains, if any, are subject to capital gains tax. A portion of the dividends you receive may be subject to AMT. For a more complete description of these and other risks, please refer to each Fund’s prospectus.

Investing involves substantial risk and high volatility, including possible loss of principal. Bonds and bond funds will decrease in value as interest rates rise. An investor should consider the investment objective, risks, charges and expenses of the Fund carefully before investing. To obtain a prospectus and summary prospectus, which contains this and other information, call 800.826.2333 or visit Please read the prospectus and summary prospectus carefully before investing.

© 2023 Van Eck Securities Corporation, Distributor A wholly-owned subsidiary of Van Eck Associates Corporation.