BlackRock, Vanguard muni ETFs see record inflows after bond rout

The two largest US municipal bond ETFs recorded their biggest weekly inflows on record as investors moved into the market following a sharp rise in tax exempt yields.

BlackRock’s $46 billion iShares National Muni Bond ETF attracted about $1.2 billion last week, while Vanguard’s $47 billion Tax Exempt Bond ETF took in roughly $1.7 billion, according to Bloomberg data.

The inflows followed a municipal bond selloff that pushed yields sharply higher. Thirty year benchmark muni yields reached 4.89% earlier this month, their highest level since 2011, while 10 year yields climbed to their highest since April 2025.

Higher yields have made municipal debt increasingly attractive relative to taxable fixed income, particularly for investors who benefit from its federal tax exemption. Vanguard has said rising yields have improved the relative value of municipals and increased their tax equivalent income potential.

Demand is returning even as the broader muni market remains under pressure. Vanguard’s VTEB was down about 1.7% for the year as of September 10, while offering a 30 day SEC yield of about 3.8%.

Tax loss harvesting may also be contributing to the flows. Investors sitting on losses in individual municipal bonds can sell those positions and temporarily move into broad muni ETFs while maintaining exposure to the asset class.

Municipal bond supply has also remained elevated. Second quarter issuance reached $182 billion, up 33% from the first quarter and 6% from the same period last year, according to Vanguard.

The record ETF inflows suggest some investors are treating the recent bond market weakness as an opportunity to lock in higher tax exempt yields rather than pulling back from municipal debt.