ETF Trends
ETF Trends

This week, Interactive Data introduced the first intraday-pricing service to value U.S. municipal bonds based on movements in interest-rate swaps, providing a tool for new tax-exempt muni-bond exchange traded funds (ETFs). Interactive Data will provide clients with prices on state and local government debt securities every 15 seconds, using the company’s existing end-of-day service that mutual funds and investment firms utilize to evaluate their portfolios, reports Jeremy R. Cooke for Bloomberg.

The tax-exempt muni-bond market lacked real-time pricing before 2005, when securities firms started reporting trades within 15 minutes. About 1% of more than 1 million existing bond issues trade each day, according to Municipal Securities Rulemaking Board data.

Barclays, which launched its iShares S&P National Municipal Bond Fund (MUB) earlier this month, as well as two other un-named ETF providers have signed up for the new pricing service. StateStreet also launched its municipal bond, SPDR Lehman Municipal Bond ETF (TFI), earlier this month. Van Eck and PowerShares are set to roll out some muni-bond ETFs as well.

As the pricing service provides more accurate prices, will the bonds trade more frequently and provide more liquidity? It could make it more difficult for fund managers to choose bonds if they use liquidity as an important factor. What effect will this have on muni-bond ETFs?

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.