These 2 Muni Funds Invest Where Most Separate Accounts Don’t
Active managers with the flexibility to own AMT bonds can tap into a part of the market that most SMAs leave on the table.
The surge in demand for separately managed accounts has reshaped the municipal bond landscape. As SMA assets have ballooned, concentrated buying in short- to intermediate-maturity bonds has compressed muni/Treasury yield ratios to levels that make the front end of the curve look overpriced. By June 2026, AAA rated munis inside 10 years, particularly those inside five years, were yielding less than comparable Treasuries on an aftertax basis, a sign that demand has overwhelmed supply.
The muni/Treasury ratio is a straightforward gauge of relative cheapness. When it is low, munis are expensive relative to Treasuries; when elevated, the tax-exempt market offers more compelling value. For the zero- to three-year part of the curve, the ratio has averaged 68% over the trailing five years ended August 2026. Today, it sits at 62%, below that long-term norm.
This is where alternative minimum tax bonds enter the picture. These munis, typically issued for airports, toll roads, and similar private-activity purpose...