Uncertainty Over Tax Breaks May Hit Muni Bond ETFs

ETF Trends

Exchange traded funds that invest in municipal bonds have been steady so far this week following the Obama administration’s proposals to limit tax breaks on muni bonds for wealthy investors.

In the proposed 2013 budget, the administration is seeking to limit tax breaks some individuals can receive on municipal securities and to revive the Build America Bonds program, Bloomberg reports.

The change could radically alter the $3.7 trillion market if approved, according to Reuters.

Obama reiterated his aim to reduce tax breaks for families earning over $250,000 to 28% from 35%.

“The budget contains what looks like a number of recycled muni provisions,” said Chris Mauro, director of municipal bond research at RBC Capital Markets, in the Reuters story. “There’s no expectation that any of this gets passed in an election year. At best, it keeps the tax reform conversation going.”

Muni bond ETFs have seen healthy inflows and are performing well on low defaults and improving credit quality. [Muni Bond ETFs Continue March Higher]

Some of the largest muni bond ETFs include:

  • iShares S&P National AMT-Free Municipal Bond Fund (NYSEArca: MUB)
  • PIMCO Intermediate Municipal Bond Strategy Fund (NYSEArca: MUNI)
  • SPDR Barclays Capital Short Term Municipal Bond ETF (NYSEArca: SHM)
  • SPDR Barclays Capital Municipal BondETF (NYSEArca: TFI)
  • Powershares Insured National Municipal Bond Portfolio ETF (NYSEArca: PZA)
  • iShares S&P Short Term National AMT-Free Municipal Bond ETF (NYSEArca: SUB)
  • Market Vectors Long Municipal Index (NYSEArca: MLN)

iShares S&P National AMT-Free Municipal Bond Fund

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