Municipal bonds with interest payments subject to the alternative minimum tax currently appeal to a certain subset of investors.
For muni investors looking for income, "you can get a nice pickup in yields with AMT [bonds]," said Pat Luby, head of municipal strategy at CreditSights.
Additionally, AMT bonds have been performing better than the non-AMT bonds, he said.
An index of AMT bonds has gained 1.84% year-to-date, outperforming a broad non-AMT index by 92 basis points.
The AMT
"My preference for a core position would be for most investors to have non-AMT, but spreads and the yields on the AMT make them appealing here," Luby said.
This week's heavy new-issue calendar "contains sought-after spread product, including a sizable amount of AMT paper," J.P. Morgan strategists wrote.
Most of the AMT paper comes from the $2.7 billion Los Angeles Department of Airports deal, of which $1.94 billion is AMT bonds.
The long AMT series of that deal, set to price Tuesday, may appeal to several audiences, including a pension fund or even a sovereign wealth fund, said Kim Olsan, senior fixed income portfolio manager.
The mega deal from the Los Angeles Department of Airports is one of several large airport deals that have priced over the past two weeks, including $1.09 billion of airport revenue bonds from the city of Atlanta and $362.1 million of airport revenue bonds from Nevada's
Airport credit accounts for the majority of AMT issuance — which
Economic development authority issues account for another $2.9 billion, but the AMT paper could potentially grow depending on data center buildouts and the use of municipal issuer conduits, she said.
For many years, uncertainty was a big reason for the hesitation around AMT bonds, but due to tax legislation, "a primary risk that may have once deterred investors from these instruments has … significantly diminished," Peter Aloisi, director and fixed income portfolio management at A&M Private Wealth Partners, wrote in a piece in 2025.
The 2017 Tax Cuts and Jobs Act dramatically reduced individual AMT exposure by raising exemption amounts and phase-out thresholds. This change lowered the number of affected taxpayers from 5.2 million to roughly 200,000, making higher-yielding private activity municipal bonds attractive for many who no longer trigger the AMT, AllianceBernstein strategists said.
However, these provisions were temporary and set to expire after the 2025 tax year, but the One Big Beautiful Bill, passed in July 2025, made "permanent adjustments by increasing the exemption amount further and keeping a high threshold for the phase-out as compared to before the TCJA," DWS strategists said in a February report.
However, risks could emerge again due to future tax legislation, and "the primary challenge for investors lies in accurately determining their current and future exposure to the AMT, given the changes to the tax code and the interplay of individual factors," they said.
Many investors are hesitant to add AMT bonds to their portfolios "without fully understanding their tax situation," DWS strategists said. "Nonetheless, for those who are confident they will remain outside the scope of the AMT, the rewards are tangible: higher yields and easier access to higher-yielding sectors such as transportation and BBB-rated bonds."
