New York, New York: It's Hell of a Muni Bond ETF

Since iShares began offering their muni-bond ETFs, we've been following their performance. Dividends paid by MUB that are "properly designated as exempt-interest dividends will not be subject to regular federal income tax" (see prospectus here). Because of its tax benefits, MUB and other muni-bond ETFs are an attractive offering for investors that don't want to deal with buying the actual bonds or exposing themselves to municipality default risk. They are definitely on the radar for our all-ETF money management strategy.

Recently, the performance of the three muni-bond ETF offerings by iShares have seen a bit of divergence. As shown below, the New York muni-bond ETF (NYF) has rallied much more than the national (MUB) and California (CMF) ones -- meaning confidence in New York's municipalities is greater than the others.

click to enlarge

Comments

[AAI:]

I appreciate your emphasis of the muni bond market, but how does buying an ETF avoid one's exposure to default risk? Muni bond defaults would reduce the prices of the ETFs.

2008 Mar 31 04:15 PM