The Muni Bond Myth That Cost High-Earners Millions

For decades, the playbook for high-income investors was almost reflexive: put municipal bonds in your taxable account, put Treasuries and corporates in your IRA. Adam Grossman, co-founder of Mayport, has been quietly tearing that rule up. His firm now routinely uses Treasury bonds in the taxable accounts of high-income clients, a move he describes as “something that you just wouldn’t have done 10 years ago.”

That is a meaningful break from received wisdom, and it deserves a closer look from anyone holding a six- or seven-figure muni allocation purely for the tax shield.

The Old Rule, and Why Grossman Broke It

Grossman, speaking on Morningstar’s The Long View, framed the old consensus bluntly. “Municipal bonds, they used to be viewed as really close cousins of Treasury bonds,” he said, and a decade ago “it would be, you know, kind of borderline malpractice to put Treasury bonds, you know, taxable bonds into a taxable account” for someone in the top brackets.

The logic was straightforward. Munis were treated as effectively default-proof, and their federally tax-exempt coupons gave high earners a better after-tax yield than comparable Treasuries. With top federal marginal rates at 37% above $626,350 in taxable income for single filers in 2025, the math has historically favored munis decisively.

Then came 2020. “What we saw in 2020 with the pandemic was that municipals really are very different from treasuries,” Grossman said. His proof point is the kind of number that sticks: the New York MTA “famously saw revenue decline 96% in 2020.” Without federal intervention, he argues, “those bonds would have come under a lot of stress and there would have been defaults.”

The takeaway is that munis carry real credit risk that the pre-2020 consensus chronically underpriced. Treasuries, backed by the federal government, do not.

The Math Has Also Shifted

Grossman’s view dovetails with a yield environment that quietly rewards Treasury holders. As of May 22, 2026, the 10-year Treasury yield sat at 4.56%, near the top of its 52-week range and in the 97.6 percentile of readings over the past year.

Across the curve, the picture is similar. As of May 26, 2026, the 5-year Treasury was yielding 4.19%, the 10-year 4.50%, and the 30-year 5.03%. The curve is positively sloped, with the 10Y-2Y spread at 0.49%, no inversion. Long-duration Treasuries are paying you to take duration risk again, and they are doing it without the idiosyncratic credit exposure that comes with a transit authority, a state pension system, or a regional hospital revenue bond.

For an investor in the top federal bracket, the after-tax yield on a Treasury near 4.5% is increasingly competitive with what high-quality munis are offering. The historic muni edge has narrowed, while the credit-risk discount on munis has arguably widened. That is the trade Grossman is making.

Bonds as a Retirement Shock Absorber

The bond conversation does not stop at tax efficiency for Grossman. He treats fixed income primarily as protection against sequence-of-returns risk for retirees and near-retirees. His rule of thumb: keep “5 years or 7 years of withdrawal” in bonds and cash, so that a bear market never forces a sale of equities at the bottom, and never forces you back into the workforce.

That last point is personal for him. Grossman recalled his grandfather’s accountant, who “had to go back to work” in his 70s after “something had gone wrong with his financial plan,” calling it “really a kind of a terrible outcome.” The whole point of holding bonds, in his framework, is making sure that story is not yours.

For high-income readers reviewing their taxable account fixed-income mix, Grossman’s reframing is worth sitting with. Munis still have a role for many investors. The case for blanket muni-only allocations in taxable accounts, though, looks weaker than it did a decade ago, and the Treasury curve is offering the cleanest, most liquid alternative it has in years.