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Use these market charts to support your conversations with clients about asset-allocation opportunities.

Municipal bonds—valuations on longer-term maturities look favorable

December 4, 2025

For your clients comfortable with taking on some additional interest rate risk, we think that longer-term municipal bonds are worth a closer look.

Longer-term municipal bonds yields more than Treasuries after taxes - line graph

Key takeaways:

  • Municipal bonds offer interest income that’s generally exempt from federal income taxes, and often state taxes, making these investments well aligned with the needs of wealthy investors.
  • For clients fitting this profile and comfortable taking on some additional interest rate risk, we think that quality longer-term municipal bonds currently look attractive on a relative value basis.1
  • As this chart illustrates, the after-tax spread—or yield difference—between AAA-rated municipal bonds and Treasuries is greater the further along the maturity curve an investor goes.
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1 Schwab Center for Financial Research, “Muni Bonds: Where Are the Potential Opportunities?,” published 10/28/25; accessed 11/14/25: https://www.schwab.com/learn/story/muni-bonds-where-are-potential-opportunities.

Sources: Schwab Center for Financial Research®; Bloomberg. Data as of 11/07/25. AAA munis are represented by the Bloomberg BVAL Yield Curve, which is populated with high-quality U.S. municipal bonds with an average rating of AAA from Moody's and S&P. Treasuries assume a 37% and 3.8% Net Investment Income Tax (NITT). All names and market data shown are for illustrative purposes only and are not a recommendation, offer to sell, or a solicitation of an offer to buy any security.

The Bloomberg U.S. Municipal Bond Index is a broad-based benchmark that measures the investment grade, U.S. dollar-denominated, fixed tax-exempt bond market. The index includes state and local general obligation, revenue, insured and pre-refunded bonds. The AAA, AA, A, Baa, 1 Year (1-2), 3 Year (2-4), 5 Year (4-6), 7 Year (6-8), 10 Year (8-12), 15 Year (12- 17), 20Year (17-22), and Long Bond (22+) are all subindices.

The Bloomberg U.S. Treasury Index includes public obligations of the U.S. Treasury excluding Treasury Bills and U.S. Treasury TIPS. The index rolls up to the U.S. Aggregate. Securities have $250 million minimum par amount outstanding and at least one year until final maturity.

Past performance is no guarantee of future results, and the opinions presented cannot be viewed as an indicator of future performance.

Indexes are unmanaged, do not incur management fees, costs and expenses and cannot be invested in directly. For additional information, please see https://www.schwab.com/resource/index-and-investment-term-definitions.

This material is intended for general informational and educational purposes only. This should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decisions.

All expressions of opinion are subject to change without notice in reaction to shifting market, economic or political conditions. Data contained herein from third party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed.

Investing involves risk, including loss of principal.

Fixed income securities are subject to increased loss of principal during periods of rising interest rates. Fixed income investments are subject to various other risks including changes in credit quality, market valuations, liquidity, prepayments, early redemption, corporate events, tax ramifications, and other factors.

Tax-exempt bonds are not necessarily a suitable investment for all persons. Information related to a security's tax-exempt status (federal and in-state) is obtained from third parties, and Charles Schwab Investment Management, Inc., dba Schwab Asset Management, does not guarantee its accuracy. Tax-exempt income may be subject to the Alternative Minimum Tax (AMT). Capital appreciation from bond funds and discounted bonds may be subject to state or local taxes. Capital gains are not exempt from federal income tax.

The Schwab Center for Financial Research is a division of Charles Schwab & Co., Inc.

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