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Muni Bond ETFs’ Moment in the Limelight


After the Detroit’s bankruptcy hindered demand, municipal bonds, along with related exchange traded funds, are posting robust gains on huge inflows.

Year-to-date, the iShares S&P National AMT-Free Muni Bond ETF (MUB) is up 6.3%, SPDR Nuveen Barclays Municipal Bond ETF (TFI) rose 6.4% and Market Vectors Intermediate Municipal Index ETF (ITM) increased 7.1%.

According to Lipper data, muni funds have gathered $3.1 billion in assets this year, a stark shift after the $39.9 billion pulled from muni funds over the last 31 weeks of 2013, reports Aaron Kuriloff for the Wall Street Journal.

Meanwhile, yields on muni debt dipped to 2.325% Wednesday, its lowest in almost a year. MUB has a 1.85% 30-day SEC yield, TFI has a 2.06% 30-day SEC yield and ITM has a 2.17% 30-day SEC yield.

Municipal bonds have been one of the best performing assets this year. Munis returned 5.869% in 2014, including interest payments and price appreciation, compared to the 5.769% return on investment-grade corporate debt, 3.3% for the S&P 500 and 2.982% on Treasuries.

High-yield municipal bonds have jumped 9.332% year-to-date, according to Barclays data. The Market Vectors High Yield Municipal Index ETF (HYD) , which has a 5.08% 30-day SEC yield, is up 10.1% year-to-date, and the SPDR Nuveen S&P High Yield Municipal Bond ETF (HYMB) , which has a 4.56% 30-day SEC yield, is up 12.5%. [It May Be Time to Scale Back on High-Yield Muni ETFs]

The rising federal tax rates are making tax-exempt municipal bonds more attractive for investors.

“I don’t think the need for tax-exempt income ever went away, and there appears to be pent-up demand,” John Miller, co-head of fixed income at Nuveen Asset Management LLC,said in the article.

Some predict that munis have further room to gain as new muni issuance fall short of rising demand. Vikram Rai, a fixed-income strategist at Citigroup Inc., estimates that issuance will fall to $280 billion this year, from $334 billion in 2013. [Low Supply to Support Municipal Bonds Market, ETFs]

“The primary market supply is very anemic and that’s really driving down yields,” Rai said in the article.

For more information on the munis market, visit our municipal bonds category.

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.