"High-yield munis pay more than investment-grade munis because the issuers are weaker: hospital systems with thin coverage ratios, charter schools, land-secured 'dirt bonds' tied to specific developments, tobacco settlement bonds, and Puerto Rico paper."
"The biggest risk facing HIMU right now is credit deterioration in lower-rated municipal issuers if economic growth keeps softening. Real GDP grew just 0.5% in 2025Q4, with government spending contracting 5.6%, the weakest reading in the BEA's five-year window."
"When growth slows and government outlays contract, marginal issuers see revenue compression first. Spreads on those bonds widen, and because the high-yield muni market is thin, prices can move sharply on modest selling."
The iShares High Yield Muni Active ETF (HIMU) targets investors seeking tax-advantaged income through actively managed, below-investment-grade municipal debt. Currently priced around $49, it has a one-year total return of approximately 6%. High-yield munis provide higher returns due to weaker issuers, but the primary risk is credit deterioration in a slowing economy. Economic indicators show volatility, impacting state and local revenues, which can lead to wider credit spreads and price fluctuations in the high-yield muni market.
Read at 24/7 Wall St.
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