“What matters in the future is whether issuers will have the ability and willingness to repay,” as stated in a Vanguard research paper. “We think they do and will.”
Nevertheless, Vanguard notes that a correction in muni bonds may eventually manifest. Muni downgrades have exceeded upgrades over the last 27 months through year-end 2011 as a result of the poor housing prices, poor income growth and high unemployment rate. Still, it is not as dire as analysts have painted it last year. [Risks of Muni Bond ETFs]
“If a municipal investment is part of your core strategic asset allocation, you should think twice before reacting to headline news that may not have a significant impact on a muni market that measures $3.7 trillion in issuance,” Wallick added.
Some municipal bond ETFs include:
- iShares S&P National Municipal Bond Fund ETF (NYSEArca: MUB): 3.14% yield
- SPDR Barclays Capital Short Term Municipal Bond ETF (NYSEArca: SHM): 1.38% yield
- SPDR Barclays Capital Municipal Bond ETF (NYSEArca: TFI): 3.12% yield
- Powershares Insured National Municipal Bond Portfolio ETF (NYSEArca: PZA): 4.28% yield
- Market Vectors High Yield Municipal Index ETF (NYSEArca: HYD): 5.26% yield
For more information on munis, visit our municipal bonds category.
Max Chen contributed to this article.