(Bloomberg) — Muni investors seeking nearly instant gratification are being rewarded for their eagerness.

State and local debt is often seen as a buy-and-hold investment, but in 2025 bonds maturing in under a year are performing the best of all muni segments, according to data compiled by Bloomberg. The municipal short-term index has jumped 1.3% — the biggest year-to-date gain since at least 2012 — while most other Bloomberg municipal indexes have posted losses. 

While yields for benchmark state and local debt maturing in 30 years have climbed almost 67 basis points this year, they’ve shrunk nearly 36 basis points for bonds due in three and six months.

As municipal bond investors try to manage risks, such as President Donald Trump’s fluctuating tariff policies and his tax bill that could increase federal debt, long bonds have sold off.

“The long end of the curve is most influenced by macro factors,” said Eric Kazatsky, Bloomberg Intelligence senior municipals strategist. “On investors’ minds are tariffs, taxes and inflation. The short end of the curve is the opposite. It’s where you go to ride out volatility.”

Doug Vissicchio, managing director and head of municipal trading and underwriting at UBS Group AG, also attributed the strength to fiscal uncertainty.

“As short-duration maturities continue to perform, investors are paid to stay short, particularly against this volatile macroeconomic and political backdrop,” he said.

While UBS recommends investing in both ends of the municipal market, yields at or near 3% for short-term debt offer “investors an attractive entry point,” Vissicchio said, adding that he has “seen strong demand from our retail base to use short munis as a cash proxy.”

A steepening Treasury yield curve — due to inflation and debt concerns — has also impacted muni yields, said James Iselin, a managing director at Neuberger Berman. Plus, heavy state and local issuance has weighed on munis at a time when the market is seeing more individual buyers for maturities from one to 10 years compared to further out, he said.

“Hence the short end outperforming longer bonds,” Iselin said.

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