Fed Rate Hike Creates Opportunity in Leveraged Muni Funds

The recent Federal Reserve rate hike has created an attractive pricing window for municipal bond investors. However, not all muni funds are created equal. According to a recent analysis, four leveraged closed-end funds have sold off significantly in September, offering tax-free yields near or above 8%. The iShares National Muni Bond ETF (MUB) remains a solid core holding due to its low expense ratio and unleveraged structure, but investors seeking higher income may want to consider alternative options.

The Nuveen Municipal Credit Income Fund (NZF), in particular, stands out with its 8.49% market-price rate and 8.22% NAV rate, making it the cleanest swap for MUB investors. NZF's effective leverage of 41.93% provides roughly $1.42 of muni exposure per dollar invested, while its trailing performance and earnings coverage make it a compelling choice.

While NVG and MYI may offer lower yields, they can be attractive options for AMT-sensitive holders or those seeking deep discounts. However, investors should be aware that these funds run high effective leverage and all-in expense ratios above 3% per CEFConnect.