Confirm you would like to unsubscribe from this list

Don't save

Remove strategy

Confirm you would like to remove this strategy from your list

Welcome to Thornburg

Please select your location and role to help personalize the site.
Please review our Terms & Conditions

For Institutional / Wholesale / Professional Clients

The content on this website is intended for institutional and professional investors in the United States only and is not suitable for individual investors or non-U.S. entities. Institutional and professional investors include pension funds, investment companies registered under the Investment Company Act of 1940, financial intermediaries, consultants, endowments and foundations, and investment advisors registered under the Investment Advisors Act of 1940.


Please read the information below. By accessing this web site of Thornburg Investment Management, Inc. ("Thornburg" or "we"), you acknowledge that you understand and accept the following terms and conditions of use.


Products or services mentioned on this site are subject to legal and regulatory requirements in applicable jurisdictions and may not be licensed or available in all jurisdictions and there may be restrictions or limitations to whom this information may be made available. Unless otherwise indicated, no regulator or government authority has reviewed the information or the merits of the products and services referenced herein. Past performance is not a reliable indicator of future performance. Investments carry risks, including possible loss of principal.

Reference to a fund or security anywhere on this website is not a recommendation to buy, sell or hold that or any other security. The information is not a complete analysis of every material fact concerning any market, industry, or investment, nor is it intended to predict the performance of any investment or market.

All opinions and estimates included on this website constitute judgements of Thornburg as at the date of this website and are subject to change without notice.

All information and contents of this website are furnished "as is." Data has been obtained from sources considered reliable, but Thornburg makes no representation as to the completeness or accuracy of such information and has no obligation to provide updates or changes. Thornburg disclaims, to the fullest extent of the law, any implied or express warranty of any kind, including without limitation the implied warranties of merchantability, fitness for a particular purpose and non-infringement.

If you live in a state that does not allow disclaimers of implied warranties, our disclaimer may not apply to you.

Although Thornburg intends the information contained in this website to be accurate and reliable, errors sometimes occur. Thornburg does not warrant that the information to be free of errors, that the functions contained in the site will be uninterrupted, that defects will be corrected or that the site and servers are free from viruses or other harmful components. You agree that you are responsible for the means you use to access this website and understand that your hardware, software, the Internet, your Internet service provider, and other third parties involved in connecting you to our website may not perform as intended or desired. We also disclaim responsibility for damages third parties may cause to you through the use of this website, whether intentional or unintentional. For example, you understand that hackers could breach our security procedures, and that we will not be responsible for any related damages.

Thornburg Investment Management, Inc. is regulated by the U.S. Securities and Exchange under U.S. laws which may differ materially from laws in other jurisdictions.

Online Privacy and Cookie Policy

Please review our Online Privacy and Cookie Policy, which is hereby incorporated by reference as part of these terms and conditions.

Third Party Content

Certain website's content has been obtained from sources that Thornburg believes to be reliable as of the date presented but Thornburg cannot guarantee the accuracy, timeliness, completeness, or suitability for use of such content. The content does not take into account individual investor's circumstances, objectives or needs. The content is not intended as an offer or solicitation with respect to the purchase or sale of any security or other financial instrument or any investment management services, nor does it constitute investment advice and should not be used as the basis for any investment decision.


No determination has been made regarding the suitability of any securities, financial instruments or strategies for any investor. The website's content is provided on the basis and subject to the explanations, caveats and warnings set out in this notice and elsewhere herein. The website's content does not purport to provide any legal, tax or accounting advice. Any discussion of risk management is intended to describe Thornburg's efforts to monitor and manage risk but does not imply low risk.

Limited License and Restrictions on Use

Except as otherwise stated in these terms of use or as expressly authorized by Thornburg in writing, you may not:

  • Modify, copy, distribute, transmit, post, display, perform, reproduce, publish, broadcast, license, create derivative works from, transfer, sell, or exploit any reports, data, information, content, software, RSS and podcast feeds, products, services, or other materials (collectively, "Materials") on, generated by or obtained from this website, whether through links or otherwise;
  • Redeliver any page, text, image or Materials on this website using "framing" or other technology;
  • Engage in any conduct that could damage, disable, or overburden (i) this website, (ii) any Materials or services provided through this website, or (iii) any systems, networks, servers, or accounts related to this website, including without limitation, using devices or software that provide repeated automated access to this website, other than those made generally available by Thornburg;
  • Probe, scan, or test the vulnerability of any Materials, services, systems, networks, servers, or accounts related to this website or attempt to gain unauthorized access to Materials, services, systems, networks, servers, or accounts connected or associated with this website through hacking, password or data mining, or any other means of circumventing any access-limiting, user authentication or security device of any Materials, services, systems, networks, servers, or accounts related to this website; or
  • Modify, copy, obscure, remove or display the Thornburg name, logo, trademarks, notices or images without Thornburg's express written permission. To obtain such permission, you may e-mail us at info@thornburg.com.

Severability, Governing Law

Failure by Thornburg to enforce any provision(s) of these terms and conditions shall not be construed as a waiver of any provision or right. This website is controlled and operated by Thornburg from its offices in Santa Fe, New Mexico. The laws of the State of New Mexico govern these terms and conditions. If you take legal action relating to these terms and conditions, you agree to file such action only in state or federal court in New Mexico and you consent and submit to the personal jurisdiction of those courts for the purposes of litigating any such action.


You acknowledge and agree that Thornburg may restrict, suspend or terminate these terms and conditions or your access to, and use, of the all or any part this website, including any links to third-party sites, at any time, with or without cause, including but not limited to any breach of these terms and conditions, in Thornburg's absolute discretion and without prior notice or liability.

Give Us a Call

Fund Operations

View Of Bridge In City Against Sky in Pittsburgh USA

The Municipal Market: High Coupons & High Premiums

Eve Lando, JD
Portfolio Manager and Managing Director
17 Mar 2022
5 min read

The “Magic of Munis.” We examine municipal bond coupon structures with a focus on high coupon and high premium bonds.

The $4 trillion municipal market represents only a small part of the global and domestic fixed income market but it possesses structural nuances and unique characteristics that separate municipal securities from other fixed income instruments. This is the first in a series of articles that discusses the exclusive attributes of municipal securities.  In this initial article, we examine what is different about municipal bond coupon structures and the broader implications for the asset class and investors, with a focus on high coupon and high premium bonds.


The key defining characteristic of municipal bonds is their tax-exempt status; ultimately, it’s the reason the asset class exists. The interest component of the bond is exempt from Federal income taxes and this subsidy allows states and local governments to borrow at lower interest rates than the comparable taxable market. For investors, it’s important to understand the tax exemption only applies to the income stream and not to price appreciation. Realized gains are taxed in the same manner as other fixed income investments, with short-term gains taxed as current income and long-term gains taxed as capital gains. Under some circumstances a municipal bond purchased at a deep discount may suffer the unpleasant consequences of the de minimis tax rule. This rule determines whether the price appreciation of a discounted municipal bond, as it moves towards par at maturity, is taxed as ordinary income or capital gains, which could have a large impact on an investor’s after-tax returns.

High Coupon

The tax code creates a distinct advantage for municipal bond coupon payments and effectively makes $1 of income worth more than $1 of price appreciation and the higher an investor’s tax bracket the wider the spread between income and price appreciation. Aware of this advantage, municipalities have an incentive to issue high coupons (4%, 5% or even 6%) to make bonds more attractive to investors given the larger amounts of tax-free cash flow they provide. As a result, the municipal market has an average coupon that is greater than other domestic fixed income asset classes and the average coupon for municipal bonds has remained significantly higher even during the recent period of low rates that we experienced. Other bond markets experienced a downward trend in coupons over the last 13 years as issuers refinanced their outstanding debt and reissued bonds with lower coupons to reduce borrowing costs. However, that hasn’t happened at the same magnitude in the municipal market.

Average Coupon for Select Fixed Income Markets

Bond Market Average Coupon
Municipal Bonds 4.44%
U.S. Treasuries 1.79%
U.S. Corporate 3.55%
U.S MBS 2.61%
Represented by Bloomberg indices as of Feb 28, 2022

There are numerous benefits to owning higher coupon bonds and those benefits may be greatest in a period of rising rates or inflation. When holding all other bond characteristics equal, the lower a bond’s interest rate sensitivity, the lower its duration. Second, the higher the coupon the more durable the bond price in a rising rate environment. Bond prices and interest rates are inversely correlated so when rates rise bond prices fall and this is very important for municipal bonds because as a bond’s price falls below par the bond will flirt with becoming taxable according to the de minimus tax rule. When the discount crosses the threshold making any of the accretion back to par taxable for a prospective buyer the price will drop to compensate for the tax liability. Lastly, in a rising rate environment an investor can benefit from higher levels of cash flow by reinvesting coupon payments into higher and higher yields. If this laddering is executed consistently throughout an interest rate cycle, it will increase the yield of a portfolio and ultimately the portfolio’s total return over time.

Premium Prices

The last key aspect of higher coupon bonds is that in times of depressed market yields, such as what has occurred over the last several years, investors become more willing to pay a premium for higher coupons. Bonds that pay above market yields typically increase in price to levels often higher than the par value. When this occurs, and the bonds are priced at a such a premium, investors may question why anyone would purchase a bond for $120 when the bond matures and only pays $100 therefore guaranteeing a $20 “loss”. The idea may seem even more nonsensical when market yields fall as low as they did in the summer of 2021 and muni bond prices rise to the nosebleed levels of $130 or $140.

Average Price for Select Fixed Income Markets

Bond Market Average Price
Municipal Bonds $109.76
U.S. Treasuries $104.43
U.S. Corporate $103.20
U.S MBS $99.88
Represented by Bloomberg indices as of Feb 28, 2022

While it may appear as though bonds priced at a premium create a loss at maturity, that is not the case. The higher priced bonds carry the higher coupons that we previously discussed. The resulting improved cash flow is advantageous for muni investors because of the tax-exempt nature of the coupon income stream. This means an investor may be better off paying above par for a municipal bond and collecting more in tax-exempt cash flows than they would be paying par for a similar municipal bond.

Bond A Bond B
Maturity 10 Year 10-Year
Coupon 2.50% 5.00%
Par Value $100,000 $100,000
Market Value $100,000 $121,999
Initial Purchase -$100,000 -$121,999
10 Years of Cash Flow $25,000 $50,000
Maturity Value $100,000 $100,000
Net Cash Flow $25,000 $28,001 $3,001
Source: Thornburg Investment Management. Hypothetical figures illustrate the possible advantages of holding premium municipal bonds.

The table above illustrates just such an outcome. Bond A is a straightforward municipal bond issued at par with a 2.5% market coupon. Over the 10-year maturity of the bond, Bond A pays out $25,000 in tax-free income. At maturity, the bond returns the $100,000 purchase price at par. Bond B, however, is a premium municipal bond as reflected in the 5.0% coupon and $121,999 purchase price. While investors will have to pay more to purchase Bond B, they will receive $28,001 in tax-free coupon payments over the life of the bond and get back the $100,000 maturity amount. Clearly, Bond B is more favorable for income-seeking investors. Purchasers should keep in mind that a portion of the higher coupon payments associated with premium bonds is the return of principal. Still, the tax advantages associated with the coupon payments typically outweigh that consideration.

Discover more about:

Stay Connected

Subscribe now to stay up-to-date with Thornburg’s news and insights.

More Insights

Racers at the finish line on a track
Global Equity

Forget the Magnificent 7 – Why You Should Invest in Europe’s Fantastic 5

Europe has its own crop of market-beating growth stocks that are overlooked compared to the Magnificent Seven in the US.
Choosing between an older advisor and a younger advisor.
Investor Advice

Should You Opt for an Older or Younger Financial Adviser?

Do you want the wisdom that comes with age or the innovation that comes with youth? Maybe you can have both with an advisory team.
Markets & Economy

Observations: The Value of Dividends and Munis to Stoke Income

Our Co-Heads of Investments make the case for dividend-paying stocks and the tax-free feature of Munis as tax hikes are possible, given our government debt levels.
Markets & Economy

Observations: Market Concentration and the Fed’s Policy Outlook

Our Co-Heads of Investments discuss whether the equity market rally is finally broadening and whether the Fed's forecast for three rate cuts makes sense.
Markets & Economy

Observations: Are Investors Too Complacent?

Our Co-Heads of Investments discuss whether the financial markets' substantial gains following last autumn's 'Fed pivot' left investors smug amid potential dangers.
Woman with her smart phone and plexus connection
Global Equity

Avoiding Concentration Risk in AI: Is It Time for a Reality Check?

Overexuberance for all things AI can create concentration risk. See how we’re curating diversified exposure designed to perform over the long term.

Our insights. Your inbox.

Sign up to receive timely market commentary and perspectives from our financial experts delivered to your inbox weekly.