This investment is safe from both Trump and the Democrats — and it pays 4.7%

Municipal bonds occupy a distinctive position in the U.S. tax code: interest on most of them is exempt from federal income tax, and often from state tax for in-state residents. That feature has historically made them appealing to investors in higher brackets, and it explains why a yield of roughly 4.7% can be worth considerably more than the same nominal yield from a taxable bond.

The political angle lies in the durability of that tax treatment. Municipal bonds are used by states, cities, and public agencies to fund roads, schools, and utilities, which gives them a broad and bipartisan constituency. Proposals to curb the exemption have surfaced periodically, but wholesale changes have proven difficult to enact — a point often cited when investors weigh policy risk.

For market watchers, the key variables are supply and demand. Issuance tends to rise when governments refinance debt or fund infrastructure, while demand is sensitive to tax expectations and interest-rate moves. Credit quality also varies widely across issuers, so the sector is not uniform. As always, tax-exempt interest can affect other calculations, such as Social Security taxation, making individual circumstances central to any assessment.