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Muni Bonds, ETFs Experience Heavy Outflows


Municipal bond exchange traded funds have experienced high redemptions this year, with the $3.7 trillion muni market set to shrink for a fourth straight year.

The iShares National AMT-Free Muni Bond ETF (MUB) , the largest muni ETF with a little over $3 billion in assets under management, shrunk by $374.9 billion in the third quarter and saw $226.8 billion in outflows year-to-date. The SPDR Nuveen Barclays Capital Municipal Bond ETF (TFI) also saw $101.7 billion in out flows over the third quarter and $219.9 billion in outflows year-to-date.

According to the Federal Reserve, the overall muni bond market shrank 3.9% in the third quarter year-over-year as states held back from making additional loans in an economy, reports William Selway for Bloomberg. [Scarcity Issues Surround Build America Bond ETFs]

The cutback in new muni bond issuance, though, helped support prices in the tax-exempt market. Bond prices, which have an inverse relationship to interest rates, have been declining as investors pushed up benchmark yields on 10-year Treasuries this year.

In the three months through September, households, which own almost half of all municipal securities, cut holdings at an annual pace by $111 billion, while mutual funds cut their allocations by $82 billion, according to Fed data.

The iShares MUB ETF comes with a 2.73% 30-day SEC yield, or a 4.82% tax equivalent 30-day SEC yield, and shows an effective duration of 7.3 years. The fund is down 3.5% year-to-date.

The SPDR TFI ETF comes with a 2.60% 30-day SEC yield, or a 4.6% tax equivalent 30-day SEC yield, and also has a modified adjusted duration of 8.52 years. The fund is down 3.9% year-to-date.

iShares National AMT-Free Muni Bond ETF

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


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.