Following the pullback in municipal bonds, muni exchange traded funds could regain traction among income-oriented investors as the Fed extends its accommodative policies.
Muni bond ETFs are beginning to see their first inflows since May, reports Eric Balchunas for Bloomberg.
The iShares National AMT-Free Muni Bond ETF (MUB), which has a 2.72% 30-day SEC yield, has attracted $52.5 million in assets over the past two weeks, according to IndexUniverse data. MUB has $3.1 billion in assets and a 0.25% expense ratio.
Munis were pummeled earlier this year when rates began rising - bonds have an inverse relationship with yields, so bond prices dip as interest rates increase.
However, a period of prolonged low rates could make muni bond ETFs more attractive as an income play, especially for investors in higher tax brackets - munis essentially come with a tax-equivalent yield of about 5%.
On Wednesday, the Fed announced that it will maintain its accommodative measures in response to a weaker growth outlook due to the fiscal brinkmanship in Washington, Reuters reports.
"Available data suggest that household spending and business fixed investment advanced, while the recovery in the housing sector slowed somewhat in recent months," the Fed's policy-setting Federal Open Market Committee said. "Fiscal policy is restraining economic growth."
Now, the markets are not expecting tapering in the bond purchasing program or a hike in rate expectations until mid-2015 at the earliest.
Some other muni bond ETFs include:
- SPDR Nuveen Barclays Municipal Bond ETF (TFI): 2.61% 30-day SEC yield; $959.7 million AUM; 0.23% expense ratio
- Market Vectors Intermediate Municipal Index ETF (ITM): 2.55% 30-day SEC yield; $585.6 million AUM; 0.24% expense ratio
- PowerShares Insured National Municipal Bond Portfolio (PZA): 4.21% 30-day SEC yield; $564.3 million AUM; 0.28% expense ratio
- PIMCO Intermediate Municipal Bond ETF (MUNI): 1.77% 30-day SEC yield; $196.8 million AUM; 0.35% expense ratio
Max Chen contributed to this article.