2026 has already offered plenty of headline impacts on portfolios, from wars to huge technological leaps to stubborn inflation in each CPI report. One calendar event that has loomed even since last year, the 2026 U.S. midterm elections, is now rapidly approaching. That has major implications for stocks, of course. However, muni bonds, in particular, may be impacted.
Key Takeaways:
- A bumpy, volatile year for the economy has seen muni bonds challenged amid huge issuance.
- Goldman Sachs Asset Management (GSAM)’s Diamond discussed that landscape and active ETFs as a route therein.
- The firm offers a suite of four active bond ETFs that invest in national and state-specific munis.
The recent VettaFi webinar, “Positioning for the 2026 Midterms: Active ETFs for Municipal Income,” explored that topic at greater length, Hosted by VettaFi Head of Research Todd Rosenbluth, the webinar offered viewers insights from Goldman Sachs Asset Management (GSAM) Co-Head of Municipal Fixed Income Scott Diamond.
Diamond guided the audience through his thinking on the muni bonds landscape. The audience, responding to a poll, pointed to macro uncertainty and headline risk as their biggest concerns ahead of midterm elections, followed by rate and market volatility. He dug into not only a changed Federal Reserve, but also Iran conflict risk, inflation, and AI impacts.
“Against that backdrop, of course, we have midterms coming up,” he said. “Polling seems pretty tight, but an early read is you could have a change in at least one house. And what does that ultimately mean for economic policy, fiscal policy and markets overall?”
So, with all of that in play, what do muni bond yields look like? Diamond pointed to the tax equivalent yield to be found in muni bonds. Based on data as of August 31, a tax-free 4.6% yield was worth 7.77% to investors in the top bracket. Across the time frames, in fact, the tax-free equivalent yields were worth 3% to 4% more to those in that upper bracket.
That has occurred as the muni bonds market has dealt with a strong amount of supply. According to Diamond, 2025 was a record year. But 2026 is on pace to set a new record for new issue supply among municipal bonds. Within that, high yield has seen notable demand, with YTD flows at the “second strongest pace on record.”
“The demand is probably split fifty-fifty between mutual funds and ETFs,” he added. “But if I look at either, or if I look at it a combined, it seems like the preference has very much been towards active managers, less interest in the passive variety, very much interest in active.”
GSAM offers four different active muni bond ETFs for investors to consider. That group includes the Goldman Sachs Ultra Short Municipal Income ETF (GUMI) and the Goldman Sachs Municipal Income ETF (GMUB) as well as state-specific ETFs, the Goldman Sachs Dynamic California Municipal Income ETF (GCAL) and the Goldman Sachs Dynamic New York Municipal Income ETF (GMNY).
That suite of active muni bond ETFs gives managers a broad remit to look for the best opportunities. What’s more, as those event and volatility risks continue to loom, the suite can find opportunities that their passive complements may not.
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