Municipal Bond Statistics (2026)

Municipal bonds are debt issued by states, cities, counties, school districts, and public authorities to fund roads, schools, water systems, and other infrastructure. At the end of 2025 the market was about $4.40 trillion outstanding by market value, per the Federal Reserve's Z.1 accounts (see the table below).

It is also unusually fragmented. More than 50,000 separate issuers have sold over 1 million individual securities, according to the MSRB, so on any given day only about 1% of outstanding bonds actually trade. That scale and diversity shape everything about how munis behave.

Munis are a retail market. Households directly held about $2.06 trillion, or 47%, at the end of 2025, and once you add mutual funds ($836 billion), ETFs ($185 billion), money-market funds ($155 billion), and closed-end funds ($70 billion), individuals and their fund proxies own roughly 70-75% of the market (see the chart and table below).

The reason is taxes: the federal exemption is worth most to high-bracket individuals, so banks and insurers, which face lower effective rates on the income, hold far less. US banks held about $362 billion and property-casualty insurers about $209 billion.

The defining feature of most municipal bonds is that their interest is exempt from federal income tax, and often from state and local tax if you live where the bond was issued. That exemption is why munis yield less than comparable taxable bonds yet can leave a high earner with more after-tax income.

Not every muni is fully tax-free. Some are subject to the alternative minimum tax (AMT), and taxable munis, such as the Build America Bonds issued in 2009-2010, carry no exemption. About 88% of 2024 issuance was tax-exempt, per SIFMA.

Because the income is tax-free, you cannot compare a muni yield to a taxable bond yield directly. The tax-equivalent yield (TEY) grosses the muni up: TEY equals the tax-free yield divided by one minus your marginal rate. A 4.0% muni equals about 5.9% taxable at the 32% bracket and about 6.3% at the 37% bracket (see the chart and table below).

Add the 3.8% net-investment-income tax that hits high earners and that same 4.0% muni is worth about 6.8% pre-tax. The higher your bracket, the more the exemption is worth, which is exactly why munis skew toward wealthy investors.

After the 2022-2023 rate surge, muni yields are the most attractive they have been in over a decade. As of about September 2025, AAA-rated munis yielded roughly 2.9% at 10 years and 4.3% at 30 years on the Bloomberg AAA scale (see the table below).

On a tax-equivalent basis those translate to roughly 4.6% and 6.8% for a top-bracket investor, competitive with or better than comparable Treasuries and corporates after tax. Yields move daily, so treat these as snapshots rather than fixed levels.

Supply has boomed. States and localities issued a record $513.6 billion of new municipal bonds in 2024, up about 33% from 2023 and above $500 billion for the first time, as issuers spent down pandemic relief and funded deferred infrastructure (SIFMA).

The pace carried into 2025, which set fresh quarterly records, with a single quarter topping $162 billion. Heavy new supply tends to cheapen bonds modestly and is one reason muni yields have stayed elevated versus their own history.

The headline safety statistic is stark. Over 1970-2024, investment-grade municipal bonds had a 10-year cumulative default rate of about 0.10%, versus about 2.24% for investment-grade corporates, roughly 20 times lower (see the table below). All-rated munis averaged about 0.09% over any 10-year window.

By rating the gap is consistent: Aaa munis defaulted essentially never (0.00%), Aa at 0.02%, and single-A at 0.10%, while the comparable corporate figures run several times higher. Even Baa munis, at about 1.05%, defaulted less than single-A corporates.

The rare muni default also tends to hurt less. Moody's found that defaulted munis recovered on average about 66 cents on the dollar over 1970-2022, versus roughly 42 cents for senior unsecured corporate bonds, because many munis are backed by essential services or dedicated revenues.

High-profile failures like Detroit (2013) and Puerto Rico dominate headlines, but they are outliers. The combination of low default frequency and higher recovery is why munis are treated as one of the safer fixed-income asset classes.

Munis come in two broad flavors. General obligation (GO) bonds are backed by the issuer's full taxing power, while revenue bonds are repaid only from a specific project's cash flow, such as tolls, water fees, or airport charges. Revenue bonds make up the larger share of the market.

That distinction matters for risk: a GO bond leans on a government's ability and willingness to tax, while a revenue bond depends on one enterprise performing. Both sit inside the market's very low aggregate default rate, but credit quality varies widely issuer to issuer.

Most retail investors reach munis through funds rather than buying individual bonds, which sidesteps the market's fragmentation. Mutual funds held about $836 billion and ETFs about $185 billion at the end of 2025, with ETF assets growing fast, up sharply since 2022 as investors chased liquidity and low fees.

The muni fund space remains overwhelmingly actively managed, with the large majority of fund assets in active strategies, though ETF flows, including active ETFs, have been the fastest-growing segment. A fund spreads exposure across many issuers, muting single-name credit risk.

Munis are steady but not risk-free. The Bloomberg Municipal Bond Index returned in the low-to-mid single digits in most recent years, but fell about 8.5% in 2022 when interest rates spiked, its worst year in decades (see the chart and table below).

It rebounded about 6.4% in 2023, gained roughly 1% in 2024, and returned around 4% in 2025. Those are pre-tax figures; for a taxable investor the after-tax return is meaningfully higher because the coupon income is exempt.

Low default risk does not mean no risk. Munis carry interest-rate risk, longer-dated bonds fell hard in 2022, plus call risk (many are callable before maturity), and liquidity risk in a market where most bonds rarely trade. Some bonds trigger the AMT.

Concentration is another trap: buying only your home state's bonds for the double tax exemption ties your portfolio to one government's finances. Credit quality also ranges from rock-solid GOs to speculative-grade project bonds, so the aggregate 0.10% default rate hides real dispersion.

Municipal bonds are built for a specific job: tax-efficient income for investors in higher brackets who hold bonds in taxable accounts. If your marginal rate is 32% or above, a muni yielding 4% can beat a taxable bond yielding 5% after tax, which is the whole point of the tax-equivalent yield.

For lower brackets, or inside a tax-advantaged account like an IRA, the exemption is wasted and ordinary taxable bonds usually yield more. As always, diversify across issuers and states (a fund does this automatically) rather than betting on a single municipality, and match the bond's maturity to when you need the money.