Bond ETF Comparison: Tax Efficiency in Aggregate vs. Municipal Bonds

The iShares Core U.S. Aggregate Bond ETF provides broad exposure to investment-grade bonds, including corporate and Treasury debt, but much of its income is federally taxable in a brokerage account. Conversely, the National Municipal Bond ETF offers qualifying municipal interest that is generally exempt from federal income tax. The National Municipal Bond ETF currently offers a 3.84% 30-day SEC yield, with an estimated tax-equivalent yield of 6.49%.

While the iShares Core U.S. Aggregate Bond ETF tracks the Bloomberg U.S. Aggregate Bond Index and offers diversification, its income is subject to federal taxation. The National Municipal Bond ETF provides a mechanism for generating spendable income for retirees in higher federal tax brackets due to the tax-exempt nature of its interest.