Tax-Exempt Income Could Make Munis Head of the Class
Municipal bond issuance continues to re-write the record books, with 2026 on track for a third consecutive year of historically high supply. Year-to-date issuance has surpassed $400 billion, fueled in part by growth in sectors like gas prepaids and hospitals.
As record issuance reshapes the municipal market, yields remain elevated, giving investors an opportunity to lock in more income today than a few years ago. For those in higher tax brackets, this translates into attractive tax-equivalent yields – particularly on a risk-adjusted basis – versus corporates. When you factor in their relatively stable credit ratings and lower default rates, municipal bonds are even more compelling.
For active investors willing to do their homework, we believe today’s municipal market has much to offer. Elevated income, resilient credit fundamentals, and a broader opportunity set create multiple paths to adding value – all while the asset class’s tax-exempt income advantage remains front and center.
Source: Bloomberg as of 8/31/26. Tax-Equivalent yield assumes a tax rate of 40.8% after 12/31/17 and 43.4% prior to 1/1/18 using the 10-Year AAA municipal bond rate. AAA, AA, A, and BBB tax-equivalent yields are based on the Bloomberg Municipal Index. The views contained in this report are those of Income Research + Management (“IR+M”) and are based on information obtained by IR+M from sources that are believed to be reliable but IR+M makes no guarantee as to the accuracy or completeness of the underlying third-party data used to form IR+M’s views and opinions. This report is for informational purposes only and is not intended to provide specific advice, recommendations, or projected returns for any particular IR+M product. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission from Income Research + Management. “Bloomberg®” and Bloomberg Indices are service marks of Bloomberg Finance L.P. and its affiliates, including Bloomberg Index Services Limited (“BISL”), the administrator of the index (collectively, “Bloomberg”) and have been licensed for use for certain purposes by IR+M. Bloomberg is not affiliated with IR+M, and Bloomberg does not approve, endorse, review, or recommend the products described herein. Bloomberg does not guarantee the timeliness, accurateness, or completeness of any data or information relating to any IR+M product.
