The iShares National Muni Bond ETF (MUB) Offers a Broader Bond Mix Than the Vanguard Intermediate-Term Treasury Index ETF (VGIT)

The Vanguard Intermediate-Term Treasury ETF (VGIT +0.14%) and the iShares National Muni Bond ETF (MUB +0.04%) differ most in their bond exposure: VGIT focuses on Treasuries with a slightly higher yield, while MUB offers broad municipal bond diversification and potential tax advantages.

Both VGIT and MUB target investors seeking moderate income and lower volatility than stocks, but they do so with different types of bonds. This comparison looks at cost, returns, risk, liquidity, and portfolio makeup to help clarify which fund may appeal more, depending on individual tax situations and risk preferences.

Snapshot (cost & size)

The 1-yr return represents total return over the trailing 12 months.

VGIT is marginally more affordable with a 0.03% expense ratio compared to MUB’s 0.05%, and it also offers a modestly higher yield. This cost and payout advantage may appeal to investors who prioritize efficiency and income.

Performance & risk comparison

While both funds experienced moderate drawdowns over the past five years, VGIT saw a slightly deeper maximum loss. However, MUB’s diversified municipal bond portfolio helped it preserve more capital over the same period, reflected in its higher five-year growth of $1,000.

What’s inside

MUB holds more than 6,300 investment-grade municipal bonds, spanning a wide range of U.S. states and agencies. Its top positions include University Tex Univ Revs 08/15/2036, Atlanta Ga Wtr & Waste Wtr Rev 11/01/2040, and New York St Twy Auth St Pers I 03/15/2048, each making up a small fraction of assets. The fund has an 18.5-year track record and provides broad diversification across the municipal bond market.

VGIT, by contrast, concentrates its portfolio in U.S. Treasury notes and bonds, with its largest holdings being United States Treasury Note/Bond 4.38% 05/15/2034, 4.63% 02/15/2035, and 4.00% 02/15/2034. This focus delivers pure government exposure and a simple structure, with 76 holdings and no sector tilts or hidden risks.

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What this means for investors

Neither of these two bond ETFs looks like an exciting place to park your money. That said, their performance hasn’t been as bad as their price performance alone suggests. If we include dividends paid, MUB produced a 3.7% gain over the past five years. By the same yardstick, the VGIT ETF produced a gain of 0.8% over the past five years.

If you’re in a state with no income tax, a municipal bond fund has a strong advantage over one that generates interest that’s taxable at the federal level, such as VGIT. Interest payments from municipal bonds are generally free from federal taxes.

If stability is a stronger concern than the overall rate of return, VGIT has an advantage. Municipalities can’t print more money to cover a tax revenue shortfall the way the U.S. Government can with treasuries.