Two iShares exchange-traded funds are vying for attention among investors seeking stability and income, but they take sharply different routes. The iShares National Muni Bond ETF focuses on tax-exempt exposure to municipal debt, while the iShares 3-7 Year Treasury Bond ETF targets the Treasury curve in the three- to seven-year segment. As of July 30, 2026, the muni fund trades at a lower expense rate and a lower trailing distribution yield than its Treasury counterpart, setting up a trade-off between after-tax income and sovereign-credit simplicity.
Key takeaways
- Expense and yield: iShares National Muni Bond ETF (MUB) charges 0.05% and had a 3.2% trailing distribution yield; iShares 3-7 Year Treasury Bond ETF (IEI) charges 0.15% with a 3.7% trailing distribution yield.
- Catalyst/cause: The funds reflect different market segments—municipal bonds for tax-exempt income versus Treasury notes for federal credit exposure—driving differences in yield and performance.
- Performance trade-off: Based on trailing 12-month results as of July 30, 2026, MUB showed 5.4% total return versus 2.2% for IEI, and the five-year drawdown was -(11.8%) for MUB versus -(13.9%) for IEI.
- Diversification: MUB holds 6,727 positions with no single holding above 0.38%, compared with 83 positions for IEI.
- Implication for investors: Investors in higher-tax jurisdictions may find MUB’s tax-exempt income more valuable, while IEI’s Treasury backing can appeal to those prioritizing straightforward sovereign risk.
What the funds are designed to deliver
MUB is structured to provide tax-exempt income by holding municipal bonds. According to the fund’s data, it is broadly diversified, with 6,727 holdings and a top position weight below 0.38%. Notable holdings include the BlackRock liquidity municash fund, along with municipal issuers such as the University of Texas, New York State Thruway Authority, the State of New Jersey, and Ohio State University.
IEI, by contrast, is designed as a Treasury-focused ETF covering the three- to seven-year “belly” of the yield curve. The fund holds 83 positions, with its largest allocations including several U.S. Treasury notes, such as the Treasury Note 4.375% 11/30/2030 and other intermediate maturities. The portfolio composition emphasizes federal credit quality and generally high liquidity.
Costs, income, and where the numbers differ
Cost matters in bond allocations, particularly when returns are modest and compounding is sensitive to fees. As of July 30, 2026, MUB’s expense ratio is 0.05%, while IEI’s is 0.15%—a 0.10 percentage point annual cost advantage for the muni fund.
On income, both ETFs distribute in a way that reflects their underlying holdings, but the trailing yields diverge. MUB’s trailing-12-month distribution yield is reported at 3.2%, while IEI’s is 3.7%. Data also show that MUB has produced stronger trailing performance over the last year: its 1-year total return was 5.4% compared with 2.2% for IEI, based on the same date.
Even with MUB’s lower fee and lower headline trailing yield, investors typically evaluate municipal funds on an after-tax basis. Municipal bond interest is generally exempt from federal income taxes, and may also be exempt from state and local taxes depending on the investor’s location and the bond’s issuer. This tax treatment can make muni yields competitive with— or more attractive than—taxable Treasury yields when viewed net of taxes.
Diversification and risk characteristics
Diversification can influence how bond funds behave during periods of credit stress. MUB’s portfolio dispersion—described as holding thousands of positions with limited concentration—may reduce the impact of any single municipal issuer’s problems. The Treasury-based IEI is less diversified in terms of position count, but it concentrates on U.S. government securities.
On historical downside measures, both funds have shown relatively limited volatility in the intermediate-rate segment, though neither is risk-free. According to the provided figures for five-year performance, the maximum drawdown was -(11.8%) for MUB and -(13.9%) for IEI. The ETFs also show different sensitivity profiles, with beta reported at 0.24 for MUB and 0.14 for IEI, reflecting lower relative price volatility for both funds versus the S&P 500.
Which may fit investors better—and what to watch next
For investors seeking income alongside security, the decision often comes down to tax treatment versus sovereign credit simplicity. Municipal bonds generally tend to price with lower nominal yields than Treasuries because investors value the tax exemption. Yet relative performance does not always align perfectly with headline yield comparisons, since municipal bond pricing can also reflect differences in credit quality across issuers and prevailing market assumptions about default risk and interest-rate behavior.
Looking forward, the main variables are likely to remain interest-rate expectations, Treasury yield levels across the three- to seven-year range, and the spread environment for municipal credit. Investors comparing MUB and IEI may also want to monitor distribution trends and changes in the funds’ credit mix, as both can affect realized income and total returns. Next steps for many investors will be to align the choice with their tax bracket and state residency, and to reassess duration exposure as rates move.
