Why muni yields are at multiyear highs

Municipal bonds offer attractive tax-equivalent yields for high-income investors, even as the fixed-income market faces headwinds. September saw muni returns hit their worst levels since 2008, pushing yields to multi-year highs. This coincided with robust new issuance, much of it funding infrastructure projects.

The selloff, driven by rising Treasury yields and increased supply, has created opportunities. For those in the highest tax brackets, muni yields are now outperforming Treasuries on a tax-equivalent basis across the curve. This makes them a compelling option for income-seeking portfolios, particularly in a "soft landing" scenario where inflation moderates and growth slows but remains positive.

Looking ahead, investors should monitor inflation and growth trends. If inflation persists, shorter-term munis may be more suitable. The Federated Hermes tax-equivalent yield calculator can help assess these benefits.