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Why a Muni Bond ETF Tumbled This Week

tlydon@globaltrend.com (Tom Lydon)

The largest exchange traded fund tracking municipal bonds is down nearly 3% the past two days after analysts pointed out the ETF was trading at a significant premium to its net asset value.

The $2.8 billion iShares S&P National AMT-Free Municipal Bond Fund (NYSEArca: MUB) has been under pressure this week.

On Wednesday, Morningstar analyst Timothy Strauts noted the muni bond ETF has been trading “at a substantial premium to its net asset value lately, a phenomenon more frequent in closed-end funds than in the ETF marketplace.” He said investors should sell the ETF, which has outperformed the similar SPDR Nuveen Barclays Capital Municipal Bond (NYSEArca: TFI) this year due to the premium. [Muni Bond ETFs Face Tax Uncertainty]

Strauts said MUB has been trading at a 3% to 4% premium. [Muni Bond ETFs March Higher]

The fund “appears extremely overvalued versus its net asset value,” Matt Fabian of Municipal Market Advisors wrote in a Feb. 21 report, Bloomberg reports.

Nearly $220 million has flowed into MUB this year, according to the article.

“It was at an unnatural premium,” Strauts told Bloomberg. “All the other muni ETFs were pretty much flat. Nothing special happened in the market. It seems solely focused on MUB.”

iShares S&P National AMT-Free Municipal Bond Fund