There are two things that make munis funds a terrific investment at the moment. First, muni bonds have their own yield curve, which is not inverted, notes Todd Shaver, editor of The Bull Market Report.

So when the traditional yield curve inverts or flattens, it makes munis that much more attractive. Many bond investors flee to the safety of munis. Second, munis provide tax-free dividends, which make them especially attractive to investors who are in high tax brackets.

All of that is part of the reason why Invesco Municipal Trust (VKQ) is up 14% year-to-date. The other part is that this is a well-managed muni fund. Invesco is one of the premium brands in bond investment, so investors feel safe with the company.

Additionally, the fund offers a 4.6% annual yield — tax free. All of this makes Invesco a strong defensive play as the traditional bond market takes a shellacking from the flat yield curve.

The entire closed-end fund (CEF) industry has been having a boom year. Invesco is back to its 2017 trading range. The year prior it was trading above $17, and we believe it can get back there again. As continued anxiety in the bond sector places downward pressure on the market, expect a continued flight to munis from investors looking for a tax efficient means of dividend generation.

The other muni fund in our High Yield portfolio is Nuveen AMT-Free Municipal Credit Income Fund (NVG). Like its counterpart from Invesco, the Nuveen fund is another premium brand name, which implies safety for investors as they rotate out of traditional bonds and into the tax-beneficial munis.

The fund invests up to 55% of its portfolio in below-grade investments (rated BBB or below). When selected properly, these investments provide outsized returns. And the management team here has an excellent track record.

They are diversified across the country (major holdings are in Illinois, California, Texas and Ohio), and across industries as well (Healthcare and Transportation being two big ones). The company knows how to produce returns, which is why the stock has outperformed this year.

Speaking of the stock, it is up an outstanding 20% year-to-date (fabulous for a municipal bond fund), and also offers a healthy 4.7% tax free annual yield.

Depending on your personal tax bracket, that could place your return near 30% year-to-date. We also see continued price appreciation in the near term. Granted, the stock is at its all-time high. But it deserves to be there, given the immense tailwinds for the muni sector at the moment.

And again, even if the stock goes nowhere for the rest of the year, we’re still looking at banking that nearly 5% tax free yield – which is far safer than investing in most taxable 5% yielding securities.

Nuveen's muni portfolio has been even better to us this year than its Invesco counterpart. Both are great companies, and both worth investing in (remember to spread your eggs across multiple baskets).

Muni funds provide an extra layer of security at the moment, and with the bond market under continued pressure, expect the sector to outperform next year as well.

Subscribe to The Bull Market Report here…