High Earners Skip Treasuries for 3.9% Tax-Free Yield in Municipal Bonds

PZA tracks investment-grade U.S. municipal bonds that are exempt from federal income tax and screened to be free from the Alternative Minimum Tax. The fund holds bonds issued by states, cities, school districts, water authorities, and other public entities, and it follows the ICE BofAML National Long-Term Core Plus Municipal Securities Index. Income is generated from semiannual interest payments on underlying bonds and is distributed monthly. The fund has maintained 217+ consecutive monthly distributions since November 2007. The tax-free yield is around 3.9%, which can be competitive versus taxable Treasuries after accounting for taxes. Distribution durability is supported by historically low default rates among investment-grade municipal issuers and by the index’s exclusion of high-yield and AMT-subject bonds.

"PZA tracks investment-grade U.S. municipal bonds exempt from federal income tax and shielded from the Alternative Minimum Tax, and it has paid 217+ consecutive monthly distributions since November 2007. With a tax-free yield around 3.9%, PZA competes with taxable Treasuries that yield more on paper but less after taxes. The question is whether that monthly check is durable."

"PZA holds investment-grade municipal bonds issued by states, cities, school districts, water authorities, and other public entities. The fund tracks the ICE BofAML National Long-Term Core Plus Municipal Securities Index, screening for AMT-free issues so high earners keep the full coupon. Income flows monthly from semiannual interest on underlying bonds. The expense ratio is 0.28%, higher than ultra-cheap rivals but modest given the active credit work involved."

"Muni defaults among investment-grade issuers are historically rare. State and local tax bases, dedicated revenue streams, and federal backstops during stress have kept default rates a fraction of comparable corporate credit. PZA's index excludes high-yield and AMT-subject paper, leaning toward general obligation bonds and essential-service revenue bonds, the most boring corner of fixed income, which is exactly what an income investor wants."

"The distribution has been consistent. Full-year payouts climbed from about $0.73 in 2023 to $0.78 in 2024 to $0.84 in 2025, reflecting higher coupons on bonds purchased during the recent rate-hiking cycle. Year-to-date 2026 distributions total about $0.28 through A"

Read at 24/7 Wall St.