The global bond selloff has spilled over into the tax-exempt market, with high-grade, long-term municipal bonds now yielding over 5% and offering their highest rates since the 2008-09 financial crisis.

Munis look appealing for individuals given high absolute yields that are comparable to those on long-term U.S. Treasuries at a time of strong credit quality throughout the $4 trillion tax-exempt market.

For many investors who've favored equities over bonds, now may be the time to consider munis because a tax-advantaged 5% rate could stack up well versus stocks in the coming years.

Yields of 5%-plus are available from a range of high-quality issuers, including the Port Authority of New York and New Jersey and the City of Los Angeles Department of Airports.

"Five percent historically has been a high enough level to attract retail interest and crossover buyers," says Eric Kazatsky, a client portfolio manager at Mackay Shields. Crossover buyers are institutions like banks and insurers that will buy muni bonds when they're appealing relative to taxable debt like Treasuries, corporate bonds, and mortgage securities.

"I wouldn't be dipping my toe in the water. I would be jumping in," says Tom Kozlik, head of municipal strategy at HilltopSecurities. "These are some of the best yields we've seen in a generation." He points out that the ratio of municipal bond yields relative to Treasuries is at or near 2026 highs, making munis more attractive.

Wall Street trading desks were active last week as long-term munis topped 5%, showing that many investors agree with Kozlik.

Tax-equivalent yields on long-term munis with 30-year maturities are 8% to 10%, depending on the tax rates in states where investors reside. The higher the state and local tax rate, the greater the appeal of munis.

In high-tax New York and California, tax-equivalent yields are about 10% given combined top federal, state, and local tax rates of about 50%. Tax-equivalent muni yields-which measures the yield needed on a taxable bond to provide the same after-tax yield as a muni bond-are appealing relative to long-term high-grade corporate bonds yielding 6.5% to 7% and junk bonds at 7% or more.

While there are some pockets of credit weakness among junk-rated muni bonds like Brightline, which operates a Florida passenger railroad, overall muni credit quality is strong.

"Municipal credit is in the best shape of my career," says Dave Hammer, who heads the muni portfolio management team at Pimco. He cites record state and local tax revenue and ample financial reserves.

One factor pushing muni yields higher is record bond issuance, driven in part by infrastructure projects around the country. The state of Alabama recently sold about $3.7 billion of bonds recently for a bridge project in Mobile, for example. Total muni issuance is expected to hit a record $600 billion this year, up from $563 billion in 2025.

Investors can play long-term munis through exchange-traded funds like iShares National Muni Bond and Vanguard Tax-Exempt Bond, the two largest muni ETFs, which each manage over $40 billion and carry low annual fees of 0.05% or less.

More so than in the equity market, active management can make a difference in munis because portfolio managers can seek out opportunities in an opaque and at times illiquid market. Some notable funds include the Pimco Municipal Income Opportunities Active ETF and the NYLIM Mackay Tax Free Bond mutual fund.

Closed-end funds are another option. Consider those that trade at discounts to their net asset values, like the BlackRock MuniHoldings fund, which recently traded at a 7% discount to NAV and yielded over 6%. That high yield reflects leverage, which amplifies risk, and some return of capital to investors.

Many old-school retail investors like to hold individual bonds-although the days of clipping coupons from physical bonds are long gone. Wall Street has obliged with a growing business in separately managed accounts, or SMAs, and laddered portfolios that include individual bonds.

Some major brokerage firms have encouraged these products, and made it tougher for financial advisors to offer individual bonds by imposing heavier compliance burdens, but many retail buyers like picking and choosing their own bonds. Fidelity Investments offers a wide selection of individual muni bonds to clients.

The best values in muni bonds are in long-term maturities where yields as a percentage of Treasuries are highest. Triple-A 30-year munis yield about 4.9% over 90% of the 30-year Treasury yield of 5.35%, while five-year triple-A munis yield 3.2%, or 65% of the five-year Treasury.

Many individual investors don't want to take the rate risk of long-term munis at a time of concerns about intractable federal budget deficits, stubborn inflation of about 3%, and rising prices for oil and other commodities. Such buyers favor intermediate maturities under 10 years, including ones held in SMAs or laddered portfolios that are offered by Morgan Stanley, BlackRock, Pimco, and other firms.

Long-term munis do have an often overlooked negative: They generally can be redeemed in 10 years, giving them the upside of a 10-year bond and the greater downside of a 30-year. Long-term Treasuries are more favorable from this standpoint since they can't be called prior to maturity, giving them more upside in a falling-rate environment than long munis.

The bull case for long munis is that yields are high-and comfortably above the 3% inflation rate-and that several bullish scenarios could unfold, including a weaker economy and lower inflation.

While the triple-A 30-year muni benchmark now yields about 4.90%, munis with single-A and double-A ratings-far more plentiful than rare triple-A bonds-yield over 5%.

A recent deal from the New York State Dormitory Authority, backed by state sales tax revenue, included a 5% bond due in 2061 now trading around $99 (par value is $100) for a yield of just above 5%. It has double-A ratings. Other high-grade issuers with long-term bonds yielding over 5% include the L.A. Airport authority and New York City Municipal Water Finance Authority.

The recent Alabama State Toll Road Bridge & Tunnel Authority deal included a 6% bond due in 2066 that trades around $105 for a 5.5% yield, assuming it gets called at $100 in 2037. It has triple-B ratings.

Hammer says some of the better values lie in bonds maturing between 10 and 15 years that offer a 4.5% yield-almost as much as long-term bonds but with less rate risk.

With rates at multiyear highs, there is plenty to choose from in the muni market, and the risk/reward looks increasingly favorable.