Muni ETFs Take a Beating; Time to Sell? | ETF Trends

Municipal bond exchange traded funds (ETFs) took a hit on Friday, and they continue to decline today. Are you ready to move accordingly?

A few reasons the sentiment toward munis has changed, according to John Spence for MarketWatch, include:

  • Let’s face it – states are on shaky ground these days. Several states have unemployment rates in the double digits, including California’s behemoth economy, and their budgets are hurting.
  • Treasury bond weakness is having a spillover effect.
  • The Build America Bonds program may be expiring.
  • The shift of power to Republicans in the House is having an impact.

Herb Greenberg at CNBC weighed in on what’s happening this morning, too.

Muni bonds might not be a less-than-desirable bet for many after recent moves. However, if you’re investing via taxable accounts, especially in a relatively high-tax state, muni bond funds are still providing attractive payouts, says Murray Coleman for Barrons. [The Benefits of Muni Bond ETFs In a Tough Economy.]

Some believe that unsustainable yields are now starting to catch up with investors. Karl Denninger for Seeking Alpha points out some of the yields are so high that investors could be holding ticking time bombs, and that investors need to be careful. [Muni Bond ETFs: The Diversified Option.]

States and localities continue to suffer in these tough economic times, and investors should bear in mind that the risk of default is a real – though small – one. If you’re holding muni bonds, or are thinking of buying a muni ETF, keep these risks in mind and watch the direction of these ETFs in the coming days and weeks, have an exit strategy and be prepared to act if signs of trouble begin to appear.

Tisha Guerrero contributed to this article.

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.