We’ve written a lot about municipal-bond exchange traded funds (ETFs) as more keep coming. We’re excited because their introduction into the market expands ETF offerings. However, Shefali Anand for The Wall Street Journal has some concerns.
For one, until demand picks up noticeably, muni-bond ETFs might have a slightly higher than average bid-ask spread, which is the gap between the price buyers are willing to pay and sellers are willing to accept. Wider spreads can end up with investors getting a bad price when buying an ETF. For example, the bid-ask spread ranges from 0.05% to 0.10% for the iShares S&P National Municipal Bond ETF (MUB), whereas some highly traded stock ETFs have spreads of less than 0.05%.
Also, muni-bonds are harder to trade than U.S. Treasurys or corporate bonds. In addition, some analysts worry about what would happen if many investors attempted to redeem their ETFs at the same time.
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.