Despite Local Troubles, Muni Bond ETFs Continue to Flourish

by: Tom Lydon

It’s no secret that state and local governments are struggling lately, but that fact hasn’t gotten in the way of the appeal of muni bond ETFs this year.

According to a May 2010 white paper by RidgeWorth Investments, there were four reasons muni bonds prices shot up last year: budget and credit problems, increased tax rates, Build America Bonds and money market yields, reports Marlene Y. Satter for Investment Advisor.

Those themes, the paper said, should continue to be factors through this year, too.

Muni bonds have many benefits, including:

  • They’re exempt from federal taxes and in some cases, state and local taxes
  • Low default rates
  • Low price volatility
  • Diversification
  • Attractive returns

Despite dire economic conditions around the country, muni bonds have retained their appeal. The “why” answer isn’t simple, but some have hazarded a few guesses. Those include the fact that the likelihood of default is small, and municipal bonds often perform according to the “yield opportunity” that investors are looking for, reports Palash Ghosh for International Business Times.

Meanwhile, SEC Chairwoman Mary Schapiro has pressed for tougher disclosure rules for municipal bonds, whose history as a safe investment has been jeopardized by dwindling tax collections and record budget deficits by states and rising defaults by local borrowers, reports Ellen Rosen for Bloomberg.

You can find a full list of muni bond ETFs in the ETF Analyzer; if you click “expanded view,” you’ll be able to sort the options by yield, performance and more.

  • iShares 2017 S&P AMT-Free Municipal Series (MUAF): yields 2.45%
  • PIMCO Intermedia Municipal Bond Strategy Fund (NYSEARCA:MUNI): yields 2.29%
  • iShares 2016 S&P AMT-Free Municipal Series (MUAE): yields 1.87%
  • SPDR Barclays Capital New York Municipal Bond (NYSEARCA:INY): yields 3.66%
  • Grail McDonnell Intermediate Municipal Bond (NYSEARCA:GMMB): yields 2.9%
Tisha Guerrero contributed to this article.

Disclosure: None