Vanguard launches two new municipal bond ETFs, building out offering

Key takeaways:

Today, Vanguard launched two index municipal bond ETFs, the Vanguard Long-Term Tax-Exempt Bond ETF (VTEL) and the state-specific Vanguard New York Tax-Exempt Bond ETF (MUNY), further adding to Vanguard’s offering of indexed municipal bond ETFs.

The addition of the two municipal ETFs increases the number of Vanguard municipal ETFs from six to eight. Vanguard now offers across-the-curve municipal bond ETF options, as well as state-tax-exempt yield to ETF investors in California and now New York—two states with high income tax brackets which, together, account for just over 40% of U.S. municipal issuance.¹

VTEL and MUNY are both index strategies managed by Vanguard Fixed Income Group. They both come with a 0.09% estimated annual expense ratio. Each is currently the low-cost leader in its respective category.²

VTEL and MUNY follow the launch of two actively managed municipal bond ETFs in November 2024: the Vanguard Core Tax-Exempt Bond ETF (VCRM) and the Vanguard Short Duration Tax-Exempt Bond ETF (VSDM). Both are offered at an estimated annual expense ratio of 0.12%.³ Vanguard has managed active municipal strategies for investors for over 45 years.

Across the curve exposure

The launch of VTEL means advisors now have a longer-duration option to allocate to client portfolios and can target clients’ municipal-ETF assets across the yield curve for the first time since Vanguard launched its first municipal bond ETF 10 years ago.

In addition to offering investors a longer-duration option, over time, VTEL also has the potential to minimize duration drift compared to an all-curve strategy.

VTEL’s 9-basis-points expense ratio is three times lower than the average expense ratio of 0.27% for competing long-term municipal bond ETFs.⁴

Maximizing tax-equivalent yield

The New York-focused municipal bond ETF, MUNY, like Vanguard’s California-focused ETF, Vanguard California Tax-Exempt Bond ETF (VTEC), will offer all-curve exposure to maximize diversification and liquidity.

MUNY is tailored for investors in New York, offering an additional layer of tax savings through state-tax exemption. New York has one of the highest state tax rates in the country at 10.9%, making state-specific ETFs particularly attractive.⁵ Using MUNY and VTEC, residents of either state can reap both federal and state tax benefits.

MUNY’s 9-basis-points expense ratio is almost three times lower than the average expense ratio of 0.26% for competing municipal bond ETFs.⁶

Building out Vanguard’s index municipal ETF offer

Previous launches of Vanguard Tax-Exempt Bond ETF (VTEB), Vanguard Short-Term Tax-Exempt Bond ETF (VTES), Vanguard Intermediate-Term Tax-Exempt Bond ETF (VTEI), and Vanguard California Tax-Exempt Bond ETF (VTEC) were each designed as low-cost options. All have generated solid interest, in line with broad industry trends.

The municipal ETF market is expanding at an accelerating rate, with a 22% compound annual growth rate over the past five calendar years.⁷ This figure is expected to increase as more investors adopt municipal exposure through ETFs.

Overall industry growth suggests that the two new low-cost ETFs, in addition to enhancing tax efficiency, are likely to trade efficiently and contribute to flexible portfolio management for advisors and investors who are keen on targeting duration or state-specific exposure in New York.

Professional management

Vanguard Fixed Income Group has been managing index funds since 1986, when it launched Vanguard Total Bond Market Index Fund, the world’s first bond index fund. Its world-class fixed income indexing talent is supported by sophisticated technology and investment processes that enable tight tracking for Vanguard’s index funds and ETFs.

Our Vanguard municipal bond team comprises 40 tenured portfolio managers, traders, and analysts who leverage their deep experience, scale, and sophisticated processes to navigate this complex segment of the fixed income market.

¹ Vanguard, as of March 31, 2025.

² Morningstar, Inc., as of December 31, 2024.

³ Vanguard, as of March 31, 2025.

⁴ Morningstar, Inc., as of January 31, 2025.

⁵ Vanguard, as of December 16, 2024.

⁶ Morningstar, Inc., as of March 31, 2025.

⁷ Morningstar, Inc., as of December 31, 2024.

Notes:

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