Uncovering new investment opportunities in municipal bond indices

Rachael Camargo, CFA

Senior Index Sales Executive, ICE Fixed Income & Data Services

Published October 2025

An estimated 50,000 U.S. state and local governments rely on the municipal bond market to fund local essential services such as education, transportation, streets and highways, hospitals, public power, water and sewer facilities - and more of the securities are being issued today than ever.

As of the end of September, muni bond issuance for 2025 stood at $434 billion - up 12% year-on-year - with total outstanding muni bond issuance reaching $4.3 trillion as of the end of the third quarter. Average daily traded volume in munis stood at $15.6 billion as of October 2025 - a 19.5% year-on-year increase.

As issuance climbs to new heights, investors are increasingly finding themselves drawn to muni bonds by their favorable tax status and historically low default rates. The market has responded by developing new investment vehicles to cater to this growing interest: as of October 2025, the market consisted of over 50 national muni ETFs encompassing more than $132 billion in assets.

As more investment instruments become available, the way the muni market transacts is also transforming. Electronic trading platforms are creating new sources of muni bond liquidity by widening the universe of counterparties with which investors can transact. In the case of ICE Bonds, municipal securities trading on ICE’s electronic trading platform reached a record notional volume of $109 billion in the first half of 2025, a 35% increase on the first six months of 2024.

As participation grows, more opportunities present themselves to investors - but that opportunity also presents complexity. Muni bonds are generally less liquid and often more difficult to value than other fixed income securities. Furthermore, with over one million muni bonds outstanding - each with its own CUSIP, pricing, and reference data - portfolio managers can face complex questions, such as what to buy and sell when data is limited on a given security, how to differentiate between call structures and coupon structures, or how to manage distressed situations and defaults when no ratings are available.

Choosing to track a muni bond index can help investors navigate the muni bond landscape. Indices follow a consistent rules-based methodology that adheres to set parameters but can be configured to focus on a particular bond attribute to which an investor seeks exposure. These attributes can range from a broadly diversified muni index, to setting inclusion and exclusion criteria based on maturity, yield, tax-exempt status, or other specific parameters.

ICE Data Indices combines ICE’s reference data, evaluated pricing, and analytics to provide investors with a broad set of data and tools to measure and analyze the U.S. muni market.

ICE municipal bond indices

ICE maintains over 300 muni bond indices - broad and granular - with histories going back 37 years in some cases. These indices can also be used as a starting point to develop custom muni indices. Below, we present a few of the qualifications for a bond’s inclusion in three broad-based indices that can be used as a parent to customize a short- or intermediate-maturity muni index.

Below are some of ICE’s benchmarks across broad-based, intermediate- and short-duration muni bonds.

In the following two tables, we present a snapshot of the different characteristics of various ICE muni indices and their trailing total returns from inception for the purposes of a side-by-side comparison.

Investors looking beyond duration can also explore other types of muni bond indices. For example, high-yield indices like the ICE US High Yield & Non-Rated Municipal Securities Index (MUHY) track over 9,500 sub-investment grade or non-rated securities with a minimum amount outstanding of $2.5 million. In the case of the ICE BofA Broad US Taxable Municipal Securities Index (TXMB), the benchmark includes around 5,000 securities, all subject to U.S. federal taxes.

Investors in higher tax states - such as California or New York - can select municipal bond portfolios to potentially benefit from tax exemptions against local, state, and federal taxes. Alternatively, clients may choose greater diversification by investing in more broad-based portfolios as shown above.

Why choose ICE municipal indices?

ICE Data Indices combine ICE’s reference data, evaluated pricing, and analytics to provide investors with a broad set of data and tools to measure and analyze the U.S. muni market. With hundreds of ICE municipal bond indices available, backed by over three decades of market history, and years of providing clients access to thousands of securities in a single index, ICE is a leading benchmark provider for muni ETFs.