Core Viewpoint - Risk-averse fixed income investors are increasingly considering municipal bonds due to expectations of ongoing monetary easing by the Fed, with a focus on the fiscal health of issuing states and cities [1][2]. Group 1: Fiscal Health of States - Many states are entering the next fiscal year with reserve levels that are twice as strong as their historical average, indicating robust financial health [2]. - State budget reserves totaled $327 billion at the end of fiscal 2025, representing 25.2% of state spending, which is significantly above the long-term average of 9.6% since 1979 [5]. - Revenue growth has consistently outperformed forecasts, with state revenues collectively beating budgets by 2.2% in 2025, marking the fifth consecutive year of revenue outperformance [5]. Group 2: Investment Opportunities in Municipal Bonds - The ALPS Intermediate Municipal Bond ETF (MNBD) may benefit from the solid financial footing of states, allowing for strategic investment in stronger municipalities while avoiding those with significant fiscal challenges [4]. - Despite some states facing deficits and potential recessions, the overall trend in larger states shows positive revenue collection, such as California exceeding expectations by 2.4% and Illinois collecting $700 million more than budgeted [5]. - A cautious approach to municipal bonds through actively managed funds like MNBD can provide exposure while mitigating risks associated with weaker fiscal jurisdictions [4][3].