ZTAX Fund Jumps 7.36% to $22.83 After a Holiday Plunge to $21.26 Exposed a 10% Discount to NAV

The X-Square Municipal Income ETF (NYSEARCA:ZTAX) traded at $22.83 on Tuesday, October 13, 2026, at 2:59 p.m. ET, up $1.56 or 7.36% from Monday’s close of $21.26. The fund opened Tuesday at $23.00 and printed an intraday high of $23.54. Volume reached 1,630 shares by mid-afternoon.

Monday’s close was an outlier. ZTAX finished Friday, October 9, at $23.39, on volume of just 28 shares. On Monday, October 12, it closed at $21.26, a decline of $2.13 or 9.1% in a single session. That set a new 52-week low, below the prior low of $22.03. Monday was Columbus Day, when the U.S. bond market observes a holiday while stock exchanges stay open, leaving ETFs that hold municipal bonds to trade without live pricing from the underlying market.

The rebound shows what happened. A tax-exempt bond fund with a beta of 0.18 does not lose 9% of its value in a day and regain most of it the next. Monday’s print reflected thin liquidity and the absence of bond-market pricing, not a collapse in the fund’s holdings. Tuesday’s recovery to $22.83 brought the price back toward the fund’s underlying value.

The fund is small. ZTAX holds about $5.41 million in assets across 229,000 shares outstanding, which implies a net asset value near $23.62 per share. At $22.83, ZTAX trades roughly 3.3% below that implied value. At Monday’s $21.26 close, the discount was about 10%.

The bigger trend is down. ZTAX traded at $26.18 on March 13, $25.29 on April 2, $25.50 on August 13, $24.73 on September 10 and $23.39 on October 9. The 52-week range runs from $21.26 to $28.65. The fund’s total return over the past year, including dividends, is negative 2.36%. Since its inception on May 19, 2023, the average annual return has been 1.82%.

The thesis for this analysis is direct: ZTAX offers a 5.09% triple-tax-exempt yield from Puerto Rico, Guam and U.S. Virgin Islands bonds, but its tiny size and thin trading turn it into a price-discovery problem. Monday’s 9.1% plunge and Tuesday’s 7.36% rebound show that the share price can swing far from the value of the bonds inside. The underlying driver is the bond market: with 10-year Treasury yields at 5.22% and 30-year yields at 5.56%, long-dated municipal bonds are under steady pressure. ZTAX is a yield instrument that must be bought with limit orders near NAV, not chased.

What ZTAX Holds: 89% Puerto Rico, Led by 45% in COFINA Sales Tax Bonds

ZTAX is an actively managed fund that invests in U.S. dollar-denominated municipal securities issued by Puerto Rico, Guam and the U.S. Virgin Islands. Income from these territorial bonds is generally exempt from federal, state and local income taxes in every U.S. state, which gives the fund its triple-tax-exempt status. It was the first triple-tax-exempt and Puerto Rico-focused ETF in the U.S. Before May 28, 2024, it traded as the X-Square Municipal Income Tax Free ETF.

The portfolio is concentrated. ZTAX held about 16 bond positions as of August 7, 2026, with the top 10 accounting for most of the portfolio. Puerto Rico bonds made up roughly 89% of assets.

The largest exposure is the Puerto Rico Sales Tax Financing Corp, known as COFINA. COFINA bonds account for about 45% of the fund. The 5% bonds due July 1, 2058, are the largest single holding at 19.20%. The 4.784% bonds due 2058 are 16.30%. The 4.329% bonds due 2040 are 8.65%, and the 4.75% bonds due 2053 are 0.86%. COFINA bonds are backed by a dedicated share of Puerto Rico’s sales and use tax and emerged from the island’s debt restructuring in 2019.

Puerto Rico general obligation bonds make up about 24%. These include the 4% bonds due 2037 at 8.10%, the 5.75% bonds due 2031 at 5.67%, the 4% bonds due 2035 at 4.30%, the 5.625% bonds due 2027 at 3.54% and the 4% bonds due 2041 at 2.23%. These are the restructured commonwealth bonds issued under the plan that ended Puerto Rico’s central government bankruptcy.

The Puerto Rico Aqueduct and Sewer Authority, known as PRASA, accounts for about 20%. Holdings include 5% bonds due 2047 at 5.52%, 5% bonds due 2037 at 5.14%, 5% bonds due 2028 at 5.03% and 4% bonds due 2042 at 4.72%.

Outside Puerto Rico, the fund holds 5% Virgin Islands Matching Fund Special Purpose Securitization Corp bonds due 2039 at 8.55%, and 4% Guam business privilege tax bonds due 2036 at 1.74%. About 0.72% sits in a BlackRock municipal cash fund.

The fund holds no Puerto Rico Electric Power Authority bonds. That distinction matters, because PREPA remains in bankruptcy and dominates headlines about Puerto Rico debt.

For the analysis, the portfolio is a concentrated bet on Puerto Rico’s restructured credits, with heavy exposure to very long-dated COFINA bonds. That concentration drives both the yield and the price sensitivity.

The Yield: 5.09% Triple-Tax-Exempt and an 8.08% Taxable Equivalent

The yield is the reason to own ZTAX. Over the trailing 12 months, the fund paid $1.16 per share in dividends. At $22.83, that equals a yield of 5.09%. At Friday’s $23.39 close, the yield was 4.96%.

The tax advantage magnifies the yield. For an investor in the top 37% federal bracket, a 5.09% tax-exempt yield equals a taxable yield of about 8.08%. Because territorial bonds are also exempt from state and local taxes in every state, investors in high-tax states such as California, New York and New Jersey gain an additional benefit that in-state municipal bonds cannot match across state lines.

The comparison with Treasuries is stark. The 10-year Treasury yields 5.22%, but that income is fully taxable at the federal level. At a 37% bracket, the after-tax yield on a 10-year Treasury drops to about 3.29%. ZTAX’s 5.09% tax-exempt yield beats that by about 180 basis points after tax, with the caveat that ZTAX carries far more credit and liquidity risk.

The payout pattern is uneven. ZTAX pays quarterly, but the amounts swing sharply. The fund paid $0.5072 per share in January 2026 and $0.5476 in July 2026, against just $0.0594 in April 2026 and $0.0464 in October 2026. The pattern reflects the coupon schedule of the underlying bonds, most of which pay on January 1 and July 1. The prior year followed the same pattern, with $0.5197 in July 2025 and $0.0594 in October 2025.

The most recent dividend was small. ZTAX went ex-dividend on October 2, 2026, paying $0.0464 per share on October 5. The next large payment should come with the January coupon cycle.

The expense ratio is high. ZTAX charges 0.92% a year, many times what large municipal bond index ETFs charge. That fee consumes a meaningful slice of the yield. Gross of fees, the portfolio’s income is closer to 6%.

The interest exemption has limits. Interest from municipal bonds is generally exempt from federal income tax but may be subject to the alternative minimum tax depending on the investor’s situation. Capital gains from selling ZTAX shares remain taxable.

For the analysis, ZTAX’s yield is attractive on an after-tax basis for high-bracket investors. The question is whether that yield compensates for the credit, rate and liquidity risks.

Rates Are the Main Driver: 30-Year Treasuries at 5.56% Pressure Long-Dated COFINA Bonds

The single biggest driver of ZTAX’s decline is interest rates. The 10-year Treasury yield sits at 5.22% after reaching its highest level since 2002 last week. The 30-year Treasury yield stands near 5.56%. When yields rise, bond prices fall, and longer-dated bonds fall the most.

ZTAX’s portfolio is long. Its two largest holdings, the COFINA 5% and 4.784% bonds, mature in 2058, more than 30 years from now. Together they account for about 35.5% of the fund. Long-dated bonds have high duration, meaning their prices move sharply with changes in yields.

The Fed is tightening. The Fed raised its target range to 3.75%-4.00% on September 16, its first hike since 2023. Fed funds futures price a 21% chance of another hike at the October 27-28 meeting and an 88% chance by December. Cleveland Fed President Beth Hammack argued Monday for a relatively quick move to a more restrictive stance.

Inflation is the problem. Brent crude trades above $105, and WTI near $94. U.S. gasoline has tied its 2022 record for days above $4 a gallon. One-year inflation expectations reached 3.9% in the latest New York Fed survey, the highest since May 2023. Higher inflation expectations push long-term yields higher.

The global bond selloff adds pressure. UK 30-year gilts topped 6% for the first time since 1998. French government bond spreads widened to record levels. Japanese government bond yields have surged to multi-year highs. Rising yields worldwide pull U.S. long-term rates higher.

The timing of ZTAX’s decline fits the rate move. ZTAX fell from $25.50 on August 13 to $23.39 on October 9, a decline of 8.3%, as long-term yields climbed. Part of that drop reflects the July dividend of $0.5476, but most reflects falling bond prices.

Wednesday’s CPI is the next catalyst. September U.S. CPI arrives Wednesday at 8:30 a.m. ET. A soft core print would ease rate pressure and support long-dated bonds. A hot print would push yields higher and weigh on ZTAX.

For the analysis, rates are the dominant short-term factor. ZTAX will not recover meaningfully until long-term yields stabilize or fall.

Liquidity and the Discount: Why ZTAX Fell 9.1% on a Bond Market Holiday

ZTAX’s biggest practical risk is liquidity. The fund holds about $5.41 million in assets, which makes it one of the smallest municipal bond ETFs in the market. Daily trading volume is often in the dozens or low hundreds of shares. On Friday, October 9, just 28 shares changed hands.

Thin trading creates price gaps. When few shares trade, a single small order can move the price far from the fund’s net asset value. ZTAX’s market makers maintain wide bid-ask spreads. In past quotes, the spread has run from about $25.38 bid to $29.30 ask, a gap of more than 15%.

Monday showed the risk in action. October 12 was Columbus Day, a holiday for the U.S. bond market but not for stock exchanges. With no live pricing from the municipal bond market, market makers had less information to anchor ZTAX’s price. The fund closed at $21.26, down 9.1%, roughly 10% below its implied NAV of about $23.62.

Tuesday corrected most of the gap. When bond markets reopened, ZTAX traded back up to $22.83, a gain of 7.36%. The intraday high of $23.54 came close to the implied NAV. The remaining discount of about 3.3% at $22.83 is closer to normal for a thinly traded fund holding illiquid territorial bonds.

The lesson for investors is practical. ZTAX should be traded only with limit orders, ideally near the published NAV. Market orders risk execution at prices far from fair value. Investors who sold on Monday at $21.26 lost about 10% relative to the fund’s underlying value.

Discounts also create opportunity. A buyer who placed a limit order near $21.26 on Monday captured a 7.36% gain by Tuesday afternoon, plus a yield of about 5.46% at that entry price. Patient investors who watch for discounts can improve their entry significantly.

The underlying bonds are illiquid too. Puerto Rico, Guam and Virgin Islands bonds trade less frequently than mainland municipal bonds. That makes NAV calculations reliant on pricing models rather than frequent trades, which adds uncertainty to the fund’s value.

For the analysis, ZTAX’s price on any given day is a noisy signal. The NAV is the better measure of value, and the gap between price and NAV is the key metric for timing purchases.

Puerto Rico Credit: COFINA and GO Bonds Stable, PREPA Bankruptcy Still Unresolved

Puerto Rico’s credit picture has improved dramatically since the island’s debt crisis, but it remains mixed. The commonwealth and COFINA emerged from bankruptcy through restructurings that cut their debt and created the bonds ZTAX now holds. Those restructured bonds have performed since issuance.

PREPA remains the exception. The Puerto Rico Electric Power Authority is still in bankruptcy under Title III of PROMESA, nearly a decade after the restructuring process began. Bondholders claim about $12 billion, based on a pre-bankruptcy claim of about $8.5 billion plus interest since 2017.

The negotiations are stuck. On June 1, 2026, the Financial Oversight and Management Board offered non-settling PREPA bondholders a $3 billion settlement, nearly double its previous offer, and said it was willing to negotiate a contingent value instrument. On July 14, 2026, those bondholders rejected the offer outright. The board’s plan of adjustment had provided up to $2.6 billion to satisfy all PREPA creditors.

The courts have been active. On March 16, 2026, the U.S. District Court for the District of Puerto Rico denied bondholders’ motion for administrative expense priority claims of at least $3.7 billion. The First Circuit ruled in 2024 that PREPA bondholders’ only collateral is PREPA’s net revenues. Bondholders separately alleged that PREPA failed to transfer $2.9 billion over six years into a trust account designated for debt repayment.

A resolution is not expected soon. Oversight board executive director Robert Mujica said it is unlikely that a PREPA settlement can be reached before the end of 2026.

ZTAX holds no PREPA bonds. But PREPA’s bankruptcy matters indirectly. A prolonged dispute weighs on sentiment toward Puerto Rico credit as a whole. A settlement would remove an overhang. An aggressive court ruling against bondholders could raise fears about how Puerto Rico treats creditors in the future.

PREPA’s finances connect to the island’s economy. The utility’s deteriorated infrastructure and high costs affect Puerto Rico’s economic growth, which in turn affects sales tax revenue backing COFINA bonds and general revenues backing GO bonds. Higher oil prices raise power costs on an island that relies heavily on imported fuel.

For the analysis, Puerto Rico credit is stable for ZTAX’s core holdings. PREPA is a headline risk, not a direct exposure.

COFINA: Sales Tax Backing for 45% of the Fund

COFINA is the core of ZTAX. The Puerto Rico Sales Tax Financing Corp issues bonds backed by a dedicated portion of Puerto Rico’s sales and use tax. Those bonds emerged from a restructuring that separated the sales tax stream from the commonwealth’s general revenues.

The structure is the key protection. COFINA bonds have a dedicated revenue stream that flows to bondholders before reaching the commonwealth’s general fund. That structure gives COFINA bonds a stronger claim than many other Puerto Rico obligations. The sales tax base depends on consumer spending on the island.

Duration is the main risk. ZTAX’s largest COFINA holdings mature in 2058. Bonds with more than 30 years to maturity are highly sensitive to interest rates. A 50-basis-point rise in long-term municipal yields can cut the price of a 2058 bond by several percent.

The coupon structure supports income. The 5% and 4.784% coupons on the 2058 bonds provide steady income. The 4.329% bonds due 2040 and 4.75% bonds due 2053 add diversification across maturities.

The concentration is significant. With about 45% of the fund in COFINA, ZTAX’s performance depends heavily on the market’s view of Puerto Rico’s sales tax revenue and on the pricing of long-dated municipal bonds.

Inflation affects COFINA in two ways. Higher prices raise nominal sales tax receipts, which supports the revenue backing the bonds. But higher inflation also pushes yields up, which lowers bond prices. In the current environment, the rate effect dominates.

For the analysis, COFINA is the anchor of ZTAX’s yield and credit quality. Its long duration explains most of the fund’s recent price decline.

GO and PRASA Bonds: Shorter Maturities Add Stability

Puerto Rico’s general obligation bonds and PRASA bonds provide a counterweight to the long COFINA holdings.

The GO holdings have shorter maturities. The 5.625% bonds due 2027 and 5.75% bonds due 2031 mature within the next five years, which limits their rate sensitivity. The 4% bonds due 2035, 2037 and 2041 sit in the intermediate range. Together, GO bonds make up about 24% of the fund.

The GO bonds emerged from the commonwealth’s 2022 restructuring. The plan of adjustment that ended Puerto Rico’s central government bankruptcy cut the commonwealth’s debt and issued new GO bonds with lower coupons and a sustainable debt service schedule.

PRASA bonds span a wide range. The 5% bonds due 2028 are short-term. The 5% bonds due 2037, 4% bonds due 2042 and 5% bonds due 2047 extend further. PRASA provides water and sewer service across Puerto Rico, a utility with steady demand.

The short-dated bonds reduce duration. ZTAX’s 2027, 2028 and 2031 holdings, totaling about 14% of the fund, will mature or approach maturity soon, returning principal that can be reinvested at higher current yields. In a rising-rate environment, that reinvestment is a modest positive.

The Virgin Islands and Guam holdings diversify slightly. The 5% Virgin Islands Matching Fund bonds due 2039 are backed by federal excise tax rebates on rum produced in the territory. The Guam business privilege tax bonds due 2036 are backed by Guam’s gross receipts tax.

For the analysis, the GO, PRASA, Virgin Islands and Guam holdings reduce ZTAX’s concentration in long-dated COFINA bonds. But at about 55% of the portfolio combined, they cannot fully offset the duration of the 2058 COFINA bonds.

ZTAX vs. the Muni Market: Higher Yield, Higher Fee, Far Less Liquidity

ZTAX occupies a niche in the municipal bond ETF market. Its category is intermediate national municipal bonds, but its holdings are concentrated in territorial bonds rather than diversified across states.

The yield advantage is real. Most investment-grade national municipal bond ETFs yield less than ZTAX’s 5.09%. High-yield municipal bond ETFs offer comparable yields but hold lower-rated mainland bonds rather than territorial debt.

The fee disadvantage is large. ZTAX’s 0.92% expense ratio is many times higher than large municipal index ETFs. Over time, that fee difference compounds. An investor holding ZTAX for 10 years pays roughly 9% of their investment in fees.

The liquidity gap is enormous. Large municipal bond ETFs trade millions of shares a day with spreads of a penny. ZTAX trades dozens to hundreds of shares with spreads that can exceed several percent. That makes ZTAX unsuitable for investors who need to trade frequently or in size.

The tax advantage is unique. ZTAX’s territorial bonds are exempt from state and local taxes in every state. A national municipal bond ETF is exempt from federal tax but generally subject to state tax on bonds from other states. For an investor in a high-tax state who does not want to concentrate in in-state bonds, ZTAX offers a distinctive advantage.

The performance record is weak. ZTAX’s total return over the past year is negative 2.36%, and its average annual return since inception in May 2023 is 1.82%. Rising rates have hurt all long-duration bond funds, but ZTAX’s concentration and fee have made the drag larger.

Beta is low. ZTAX’s beta of 0.18 means its price moves are largely unrelated to the stock market. That offers diversification for equity-heavy portfolios.

For the analysis, ZTAX is best suited to high-bracket investors in high-tax states who want territorial tax exemption and can tolerate illiquidity. It is not a core holding for most portfolios.

Technical Levels: $21.26 Floor, $23.39 to $23.62 Value Zone, $24.73 Resistance

ZTAX’s chart is shaped by thin trading, so levels should be read as zones rather than precise lines.

The support levels are clear. The first is $22.83, Tuesday’s afternoon price. The second is $22.03, the prior 52-week low before Monday. The third is $21.26, Monday’s close and the new 52-week low. Monday’s print reflected illiquidity rather than a fundamental repricing, but it now marks the floor.

The value zone sits between $23.39 and $23.62. That range spans Friday’s close and the implied NAV based on $5.41 million in assets across 229,000 shares. Tuesday’s intraday high of $23.54 sat inside this zone. Prices in this range reflect fair value; prices below represent a discount.

The resistance levels are layered. The first is $23.54, Tuesday’s high. The second is $24.73, the September 10 level. The third is $25.29 to $25.50, the April and August levels. The fourth is $26.18, the March 13 level. The 52-week high of $28.65 sits far above.

The distance math from $22.83 sets the risk-reward. Upside to $23.62 is 3.5%. Upside to $24.73 is 8.3%. Upside to $25.50 is 11.7%. Downside to $22.03 is 3.5%. Downside to $21.26 is 6.9%.

The trend is down. ZTAX has made lower highs and lower lows since the spring, falling from $26.18 in March to the current range. A reversal requires a sustained decline in long-term Treasury yields.

The ex-dividend cycle affects price. ZTAX’s large January and July dividends produce visible price drops on ex-dividend dates. The next large payment, likely in early January, will reduce the share price by roughly half a dollar on the ex-date.

For the analysis, the technical setup favors buying discounts toward $22 and holding for the yield. Chasing above the implied NAV of $23.62 offers little margin of safety.

Catalysts: CPI, the Fed, PREPA and Year-End Tax Planning

Several catalysts will shape ZTAX’s path in the coming weeks.

Wednesday’s CPI is the immediate trigger. A soft core print would ease pressure on long-term yields and support ZTAX’s long-dated COFINA bonds. A hot print would push yields higher and weigh on the fund.

The Fed meets October 27-28. A hold would support bonds. A surprise hike would push short-term yields higher and could flatten the curve. December, with 88% hike odds, matters more for the long end.

Treasury supply matters. Heavy federal borrowing has pushed long-term yields higher. Any shift in Treasury issuance toward shorter maturities would ease pressure on the long end.

PREPA headlines are a sentiment factor. A settlement or court ruling in PREPA’s Title III case could move Puerto Rico credit spreads, even though ZTAX holds no PREPA bonds. Oversight board officials do not expect a resolution before year-end.

Year-end tax planning could support demand. High-bracket investors often add tax-exempt income in the fourth quarter as they assess their tax liability. Rising yields make municipal bonds more attractive for new money, even as they hurt existing holders.

The January coupon cycle brings the next large dividend. Most of ZTAX’s holdings pay coupons on January 1 and July 1, which produces the fund’s large January and July distributions. Investors who buy before the January ex-date capture that payment.

Fund size is a risk. At $5.41 million in assets, ZTAX is small enough that sponsors sometimes close such funds. A closure would return NAV to shareholders but could force a taxable event. No such announcement has been made.

For the analysis, the catalysts lean mixed. Rate relief would help; continued rate pressure would hurt. The tax-planning season and January coupon offer modest support.

Verdict: Accumulate Below NAV With Limit Orders; $21.26 Floor, $24.73 Target

ZTAX’s verdict for October 13 is a cautious accumulate for high-bracket, tax-sensitive investors who can tolerate illiquidity. The fund at $22.83, up 7.36% on the day, has recovered most of Monday’s 9.1% thin-volume plunge to a $21.26 52-week low.

The bear case rests on rates, fees and liquidity. Ten-year Treasury yields at 5.22% and 30-year yields at 5.56% pressure ZTAX’s long-dated holdings, with about 35.5% of the fund in COFINA bonds maturing in 2058. The Fed’s 3.75%-4.00% range and 88% December hike odds point to further rate pressure. The 0.92% expense ratio absorbs much of the yield. The fund’s $5.41 million in assets and volume of just 28 shares on October 9 create wide spreads and price gaps. Total return over the past year is negative 2.36%. PREPA’s unresolved bankruptcy weighs on Puerto Rico sentiment.

The bull case rests on yield and tax advantages. ZTAX yields 5.09% on $1.16 of trailing dividends, equivalent to about 8.08% taxable at a 37% bracket. Its territorial bonds are exempt from federal, state and local tax in every state. About 89% of the fund sits in restructured Puerto Rico credits that have performed since emerging from bankruptcy, with no PREPA exposure. At $22.83, the fund trades about 3.3% below its implied NAV of $23.62. Beta of 0.18 offers diversification from equities.

The levels are clear. Support at $22.83, then $22.03 and $21.26. Value zone at $23.39 to $23.62. Resistance at $23.54, then $24.73, then $25.29 to $25.50.

The forecast: ZTAX holds above $22 as Tuesday’s rebound restores the price toward NAV, and a soft CPI print Wednesday eases long-term yields enough to lift the fund toward the $23.39 to $23.62 value zone, a 2.5% to 3.5% gain, with $24.73 an 8.3% target over three months if Treasury yields peak. A hot CPI print and further rise in 30-year yields would push ZTAX back toward $22.03, and another thin-trading day could retest $21.26, a 6.9% decline. Investors should use limit orders near or below NAV, avoid market orders and view Monday-style discounts as entry opportunities rather than signals of credit stress.

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