This corner of the muni market shouldn’t be overlooked, Nuveen says
The concerns around housing affordability make this a good time time to consider buying housing muni bonds, according to Nuveen. The bonds, whose income is exempt from federal tax, are used to fund affordable housing development projects. Investors also don’t pay any state tax on munis if they live in the same state where the bond was issued. The need for affordable housing has led to an increase in issuance, which means investors can pick up some extra yield, said Dan Close, chief investment officer and head of municipal fixed income at Nuveen. “Affordability has become a defining issue across the United States, shaping political discourse and driving election outcomes,” he wrote in a recent paper . K-shaped Many middle- and low-income Americans are struggling in the so-called K-shaped economy , which is seeing high income households faring well. On top of that, mortgage rates remain elevated as the spring housing market gets underway. The 30-year fixed mortgage is at the highest level since September 2025, hitting 6.53% on Friday, according to Mortgage News Daily . As builders address the ongoing affordability issue, more housing bonds come to market. In fact, annual issuance has tripled between 2016 and 2025. The bonds now make up about 7% of the $4.4 trillion muni market. Close expects that growth to continue, given the large chunk of expenditures housing takes up for consumers. “We’re just seeing a lot of opportunities given this increase in the amount of housing bonds in our market, to really use our credit research team and to pick up right now about 60 extra basis points in the 10-year part of the curve, versus other [municipal] bonds in the marketplace,” he said in an interview with CNBC. Right now, housing bonds with 10-year maturities have an average yield of 3.58%, versus 3.06% for the broader muni market. Finding opportunity There are different types of housing bonds, including single family, multi-family and workforce housing, Close said. These days, Close likes to take a barbell approach that incorporates both single family and workforce munis. Single family bonds are issued by state agencies to help first-time homeowners, and are therefore very highly rated. “We’re seeing a good deal of issuance, which has cheapened up that market,” Close said. “You can pick up spread versus the [general obligation bond from the] the issuing state. For instance, the Nuveen All-American Municipal Bond Fund holds single-family housing bonds, including those from the North Carolina Housing Finance Agency. FLAAX YTD mountain Nuveen All-American Municipal Bond Fund year to date On the other side of the barbell is workforce housing, which is a relatively new financing type that targets essential workers, like teachers, nurses, police officers and firefighters. They may make too much money to qualify for affordable housing, but struggle to afford market-rate housing in expensive areas. Workforce housing bonds fall into the high-yield space, so they come with more risk. “These tend to be the lowest credit quality bonds that we see,” Close said. “These are individual projects and those are where we think you could pick up the most additional yield right now.” For example, the Nuveen High-Yield Municipal Bond Fund counts among its holdings workforce housing bonds from Vail Home Partners, as well as bonds that will fund a new development project in San Francisco. In addition to nabbing some attractive income, investors can also do some social good when investing in housing bonds, Close noted. “The tax exempt status of municipals allows these governmental agencies and entities and private developers to access cheaper capital,” he said. “That cheaper capital at lower costs than traditional taxable financing does create meaningful savings, and those savings are passed along to both renters and homebuyers.”
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