While the Swiss franc offers little, a market of 4000 billion intended to finance public infrastructure deserves attention.
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Social impact investing is growing in importance among institutional investors around the world. More and more of them are looking for opportunities to achieve measurable social results without compromising their risk or return objectives. Social bonds, issued with the explicit aim of generating social improvements, are a well-established route. Their market share, however, remains negligible: only around 0.5% of the global bond market is currently classified as social bonds.
There is a well-established and sizable alternative to integrating impact investing into portfolios: US municipal bonds, or “munis”, a market that today exceeds $4,000 billion. These bonds have financed public utility infrastructure projects for decades. They allow investors to reconcile social impact and financial solidity, without requiring an explicit ESG label.
An impact anchored in substance
Analysis shows that approximately 74% of US municipal bonds issued in 2024 would qualify as a social bond, based on their content alone. The range of funded projects is wide: in Oregon, funds have been allocated to the renovation of hydraulic infrastructure to guarantee access to drinking water. Other projects support education and urban renewal programs in Texas and Philadelphia.
American municipal bonds are also distinguished by their fundamental credit characteristics. More than 79% of bonds in the Bloomberg US Taxable Municipal Bond Index are rated AA or better, and the ten-year cumulative default rate for investment grade municipal bonds is just 0.10%, far lower than comparable corporate bonds. This stability is due to structural factors: many bonds are backed by secure revenues, such as taxes or royalties, which guarantee repayment through essential public finances rather than commercial results.
The return profiles are equally attractive for long-term investors. Compared to an equivalent rating, taxable municipal bonds offer competitive to above-average yields compared to corporate bonds, while benefiting from broad geographic diversification across U.S. states and municipalities.
The Swiss angle: net return after hedging
In recent years, demand from institutional investors outside the United States has continued to grow. European pension funds and insurance companies have increasingly become aware of the importance of paying more attention to them. For Swiss pension funds, the domestic bond market has long offered structurally low yields and the search for quality alternatives offering a real yield gain remains a major concern for many pension funds.
US municipal bonds directly address this need, although calculations must be made with caution. Even after accounting for hedging costs, a portfolio of high-quality taxable municipal bonds offers a higher net return than comparable CHF-denominated fixed income securities. The combination of strong credit quality, measurable social impact and positive contribution to net return after hedging is what makes this market truly interesting for Swiss institutional investors.
Substance rather than certification
Debates around impact investing are often dominated by questions of certification and greenwashing. American municipalities offer another approach: impact does not lie in a label, but in real and reproducible change in people’s lives. The determining question is whether an investment has a measurable positive effect on health, education, housing or access to essential services, and whether this effect is reliable and verifiable over time.
For Swiss institutional investors seeking a combination of credit quality, social utility and net return contribution within a single asset class, the US municipal bond market deserves serious attention. It is one of the rare segments of global bond markets where these three characteristics converge and where this convergence has been demonstrated over several decades, and not simply asserted.
