A 'just right' moment for munis

Today’s municipal bond market sits in a rare “just right” position after years of rate volatility and curve distortion. How did we get here, and what should long-term investors make of this environment?

For a sustained period between 2022 and 2024, the municipal yield curve was flipped on its head. In other words, investors could earn more from short-term bonds than from longer ones. That meant traditional strategies like laddering maturities didn’t always make sense.

Now, that has changed. The muni curve has returned to a more traditional, upward slope. Investors extending maturities from cash-like instruments to 10-year municipal bonds can pick up around 75 basis points in yield. That’s a meaningful improvement for those building portfolios with intention. It brings yield clarity back into the conversation and supports a more rational, sustainable approach to allocating fixed income.

It also creates new options for investors. With the curve back in a more natural position, strategies like laddering or barbell portfolios become more effective. Investors can stagger maturities to manage reinvestment risk or balance short-term liquidity with long-term yield pickup. This creates more room to tailor portfolios around income needs and interest rate views – without relying on guesswork or market timing.

However, not all bonds are priced the same, even when the credit quality is identical. Some trade at wider yields because of structural features like lower coupons or shorter call protection. These aren’t necessarily riskier. They’re just less popular.

For example, bonds issued in the ultra-low-rate years of 2019-2021 often came with 1-2% coupons. In today’s market, where demand has shifted back toward 5% coupons and longer call protection, these older bonds can be found at discounted prices and offer attractive yields for patient buyers.

Almost all long-term muni bonds are callable, and bonds with quirks like shorter calls or off-market coupons are often mispriced. Active managers with research capabilities can take advantage of these inefficiencies without moving down the credit spectrum. We tend to look for these structural opportunities to increase yield, not risk.

Muni bond prices can and do move. But a price dip doesn’t mean a bond has failed.

These are investments designed to pay interest and return principal over time. That’s a powerful promise for an investor who is used to the daily ups and downs of the stock market.

Recent months have seen increased bond market volatility, but tax-equivalent yields in high-tax states are still above 7% in some cases. That kind of yield has rarely been available in tax-exempt assets over the last decade.

This is where advisors play a key role. They help investors distinguish between real portfolio risk and background noise. They provide a steady hand when the headlines suggest panic.

That’s what makes this a “just right” moment. Yields are high enough to attract buyers without requiring big credit concessions. Supply is rising, but not disorderly. And while rate uncertainty remains, the fundamentals of municipal credit remain strong across core sectors. It’s not an overly speculative market—but it’s far from stingy, either.

The muni market is growing. Issuance is on track to break records, with more than $275 billion sold in the first half of 2025 alone. That added supply may pressure prices in the short term, but it also creates opportunities for long-term investors to enter the market at favorable valuations.

Tax policies and Fed rate decisions can be moving targets. But the fundamentals of municipal credit, especially in sectors like essential services and core infrastructure, make for an attractive part of an investor’s portfolio.

Kim Olsan is a senior fixed income portfolio manager at NewSquare Capital, where she serves as the firm’s lead expert in municipal fixed income. She brings over 30 years of experience in fixed income investing.