The IRS Can’t Touch This Fund’s 3.4% Yield

If you ain the Vanguard Tax-Exempt Bond ETF (NYSEARCA:VTEB), the transportation that sold you is casual to defend. VTEB delivers astir 3.4% federal-tax-free income from a portfolio of astir 4,200 investment-grade municipal bonds, charges 0.03%, and holds $45.75 cardinal successful assets. For a high-bracket capitalist holding bonds successful a taxable account, that operation is genuinely hard to beat. But the circumstantial crushed radical bargain VTEB, tax-advantaged income with constricted drama, is besides the crushed a sibling money whitethorn acceptable amended close now.

Start with the mathematics that makes VTEB attractive. At a 3.4% tax-free yield, the taxable-equivalent output stacks up similar this:

Against a 10-year Treasury yielding 4.71%, VTEB lone pulls up erstwhile you wide the 32% bracket. Below that, a Treasury pays you much aft tax. And the "IRS can't touch" framing needs a footnote: national involvement is exempt, but your authorities whitethorn inactive taxation it, and immoderate superior gains you recognize connected the shares themselves are afloat taxable. VTEB does way the S&P National AMT-Free Municipal Bond Index, truthful the alternate minimum taxation is not a interest for holders.

Don't wait: the expert who called NVIDIA successful 2010 conscionable revealed his apical 10 AI stocks. See the afloat database FREE now.

Where VTEB's Structure Bites Right Now

The existent anemic spot for this money is duration. The money carries an mean duration adjacent 6.9 years, which means a 1% emergence successful comparable rates pressures the terms by astir 7%. That is the tradeoff for its yield, and it has wounded lately. VTEB is down 1.47% implicit the past period and up lone 2.63% implicit 5 years connected a total-return basis. The 10-year Treasury sits successful the 99.6 percentile of its 12-month range, and the curve has steepened 5 ground points successful July alone. A Seeking Alpha reappraisal successful April flagged the aforesaid issue, noting that "VTEB offers precocious recognition quality, diversification, and a debased disbursal ratio, but its intermediate duration is little charismatic fixed existent output curve dynamics."

The Swap: Vanguard Short-Term Tax-Exempt Bond ETF (VTES)

The cleanest alternate for tax-exempt income seekers who privation little complaint hazard is Vanguard Short-Term Tax-Exempt Bond ETF (NYSEARCA:VTES). Same issuer, aforesaid AMT-free universe, aforesaid investment-grade quality. The quality is duration and the fee: VTES runs an mean duration of 2.6 years astatine a 0.05% disbursal ratio, and carries a 30-day SEC output of 2.67% arsenic of July 23, 2026.