Cities around the United States need some cash, sparking a municipal bond rally that could be good news for exchange traded fund (ETF) investors.

States and cities are selling off around $6 billion worth of debt this week. For example, Houston is selling $423 million and New York City will sell $400 million, among others, reports Scott Jagow for Marketplace. And there are going to be plenty of buyers.

This may be the strongest rally for muni bonds in history and this is great news if you want to get in on the market. Just a month ago, no one wanted to lend money, especially not to cities and states, driving yields up and prices down.

The rally began on Oct. 15 and is continuing well into this week, and many of the buyers appear to be individual investors pulled in by the high-yielding, mostly tax-free bonds.

Both types of investors are on the hunt for yields higher than what Treasury bonds currently offer, leading to a $5 billion long-term bond issuance by state and local governments in New York, says Jeremy R. Cook for Bloomberg.

Right now, the 10-year Treasury yields 3.85%, while the 10-year muni yields 6.47%. Muni bond sales this year through early September rivaled 2007’s record pace. After the most recent turmoil oin the markets, overall issuance this year has been down nearly 9% through last week.

There are a number of muni-bond ETFs to watch, including:

  • PowerShares Insured National Muni Bond (PZA): down 12.8% year-to-date; yield 4.95%

Municipal Bond Exchange Traded Funds (ETFs)

  • Market Vectors Intermediate Muni (ITM): down 6% year-to-date; yield 3.74%

Municipal Bond Exchange Traded Funds (ETFs)

  • iShares S&P National Municipal Bond (MUB): down 3.3% year-to-date; yield 3.52%

Municipal Bond Exchange Traded Funds (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.