When advisors think about municipal bonds, the conversation almost always centers on tax-exempt bonds — and for high-bracket clients, that focus is entirely justified. The tax math favors it, and the yield advantage of the exemption is meaningful at current rates. But taxable municipal bonds represent a growing and often misunderstood segment of the $4.4 trillion muni market, and for specific client situations, they can add value that the tax-exempt segment simply can’t match.
The market for taxable munis has grown substantially in recent years. The segment now accounts for roughly $33 billion annually in issuance, up significantly from prior cycles. Much of the growth reflects a practical reality for issuers: certain projects that once qualified for tax-exempt financing — advance refundings, some private activity bonds — lost that status under the 2017 Tax Cuts and Jobs Act. Issuers who still needed to access capital had to do so on a taxable basis. The result is a rich and growing universe of investment-grade taxable muni bonds from high-quality state and local government issuers.
The credit profile of this segment is where things get interesting. A study comparing A-rated taxable municipal bonds to A-rated corporate bonds from 2009 through 2023 found a result that deserves more attention than it typically gets: there were zero defaults among A-rated taxable munis over the 14-year period studied. Among comparably rated corporate bonds in the same sample, there were 11 defaults. The study’s author — who is also the chief investment officer for a $4.5 billion insurance company with approximately $1 billion in muni exposure — put it plainly: “I would much rather invest in the muni, both in terms of default rates and in terms of the yield that you’re getting off of those.”
dividend.com
by Jason Kirsch
Apr 30, 2026