Quick Read – VTEB’s 3.4% tax-free yield only beats Treasuries for investors in the 32%-plus bracket; VTES halves the duration risk at a slightly lower yield. – On a $100,000 position, a 1% rate rise costs VTEB holders roughly $7,000 in price versus $2,600 for VTES holders. – If…
u own the Vanguard Tax-Exempt Bond ETF (NYSEARCA:VTEB), the pitch that sold you is easy to defend. VTEB delivers roughly 3.4% federal-tax-free income from a portfolio of roughly 4,200 investment-grade municipal bonds, charges 0.03%, and holds $45.75 billion in assets
For a high-bracket investor holding bonds in a taxable account, that combination is genuinely hard to beat. But the specific reason people buy VTEB, tax-advantaged income with limited drama, is also the reason a sibling fund may fit better right now. Start with the math that makes VTEB attractive.
At a 3.4% tax-free yield, the taxable-equivalent yield stacks up like this: Against a 10-year Treasury yielding 4.71%, VTEB only pulls ahead once you clear the 32% bracket. Below that, a Treasury pays you more after tax. And the “IRS can’t touch” framing needs a footnote: federal interest is exempt, but your state may still tax it, and any capital gains you realize on the shares themselves are fully taxable.