Muni ETFs: Cheaper than Corporate Bonds

Rising Treasury yields and Detroit’s bankruptcy filing have made it tough for municipal bonds this summer. In fact, some muni bond indices have higher yields than comparable corporate bond benchmarks.

“Fund outflows and credit issues continue to mount an attack on the municipal bond market which has resulted in the municipal bond market now having yields that are significantly cheaper than their corporate bond counterparts,” according to a note from S&P Dow Jones Indices.

“Investment grade municipal bonds tracked in the S&P National AMT-Free Municipal Bond Index are yielding a tax-free 3.34%.  Investment grade corporate bonds tracked in the S&P U.S. Issued Investment Grade Corporate bond Index are yielding a taxable 3.21%,” it said. “High yield municipal bonds tracked in the S&P Municipal Bond High Yield Index are yielding a 6.97%. Corporate junk bonds tracked in the S&P U.S. Issued High Yield Bond Index are yielding a 6.00%.” [A Muni Bond ETF that Sidesteps Default Worries]

Muni bond mutual funds and ETFs have seen outflows for 14 straight weeks, Barron’s reports.

The iShares National AMT-Free Muni Bond ETF (NYSEArca: MUB) is down 6% the past three months.

iShares National AMT-Free Muni Bond ETF

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