Vanguard Expands Muni-Bond Lineup with 2 ETFs

Vanguard Expands Muni-Bond Lineup with 2 ETFs

Investor interest is rising as rates appear to plateau, and despite fewer muni issuances.

Finance Reporter
Reviewed by: Staff
Edited by: Ron Day

Vanguard Group, the second-largest U.S. ETF issuer, plans to launch a pair of index municipal bond ETFs as hopes that interest rates may stop rising sparks demand for relatively safe bond products.  

Vanguard, with $2.06 trillion in 82 ETFs, said in a statement that the Vanguard Intermediate-Term Tax-Exempt Bond ETF (VTEI) and the Vanguard California Tax-exempt Bond ETF (VTEC) will offer investors exposure to federal tax-free yields. The passively managed funds target investors with an intermediate time horizon, the statement said. The funds will have expense ratios of 0.08%, compared to the average of 0.34% for fixed income ETFs, according to data.  

Muni ETFs, which track debt securities issued by both state and local governments, take advantage of the fact that interest income from municipal bonds is typically exempt from federal income taxes. Demand is rising as investors hold out hope that the Federal Reserve will not raise interest rates further and may in fact begin to trim them. 

“These new strategies will offer tax-sensitive investors low-cost exposure to important segments of the municipal bond market through the ETF product structure,” Dan Reyes, Global Head of Vanguard Portfolio Review Department, said in the statement.  

Yet despite demand for muni bonds, issuances have dropped 14% this year, David Dowden, portfolio manager of the MainStay MacKay municipal bond fund told last month in conversation with analyst Sumit Roy.  

Tax Efficient Muni-Bonds 

The Vanguard California Tax-Exempt Bond ETF is being marketed as an investment vehicle specifically for California residents, because the ETF offers exposure to both federal and state level tax-exempt yields.  

The new additions to Vanguard’s $229 billion municipal bond portfolio will expand the firm’s fixed income lineup. Its biggest muni-bond fund is the Vanguard Tax-Exempt Bond ETF (VTEB). The issuer’s largest is the Vanguard 500 Index Fund (VOO).   

Eighty-one municipal ETFs, holding $81.9 billion trade on U.S. markets. The largest is the $34.5 billion iShares National Muni Bond ETF (MUB). 

The most recent ETF launched in the muni space was the Eaton Vance Intermediate Municipal Income ETF (EVIM) on Oct. 16. 

Contact Lucy Brewster at [email protected].  

Lucy Brewster is a finance reporter at covering asset managers, emerging technologies, and regulation. She hosts webinars and appears on Exchange Traded Fridays,’s flagship podcast. She previously was a finance fellow at Fortune Magazine where she covered markets, investment strategy, and venture capital. She has also been a freelancer writer at the publication Mergers & Acquisitions and a research fellow at the Historic Hudson Valley. 

She graduated from Vassar College in 2022 with a degree in History and was an editor of The Miscellany News, the college's award winning student run newspaper. 

Lucy lives in Brooklyn, NY, and in her free time she loves to run and find new recipes to cook.