There’s not been a hiccup as far as trading, the spreads have been very reasonable and manageable, reports On Wall Street.
On the plus side, yields are high right now relative to U.S. Treasuries. In ordinary times, municipals trade at yields a little lower than Treasuries, pricing in their tax advantages.
Munis are also tax-free, of course, and double-tax free if your client is a New Yorker or Californian who buys a home-state muni ETF. Defaults can happen, but are rare, at least compared to corporates. The major downside to the muni market is that since the insurance is not available, institutional investors steer clear of this investment class. Both leveraged investors and individuals are not interested in munis either.
To cope with the downside risk of a muni ETF, keep your eye on the 200-day moving average, and if the fund falls below this, it may be time to get out.
- iShares S&P National Municipal Bond ETF (MUB): up 1.2% year-to-date; up 0.4% for one week; 3.55% yield
