ETFs that invest in muni-bonds are a boon for investors that invest in single-issues because these are ill-liquid after issue and investors must hold them until maturity. Holding a percentage of your municipal-bond allocation in the more-liquid ETF form will give you the ability to sell if you get in a bind, minus the trading spread.[Bond ETFs Hit by Erratic Trading]

Municipalities are in a bind of budgetary problems that are not easily worked out due to the housing bust. Many are working out budgets that cut costs to match lower revenues.

“There will be a terrible problem and then the question becomes will the federal government help. If the federal government will step in to help them, they are triple-A. If the federal government won’t step in to help them, who knows what they are,” Warren Buffet stated. [Muni-Bond ETFs Yawn at Latest Bankruptcy]

Other muni-bond ETFs:

  • PowerShares Insured National Muni-Bond (NYSEArca: PZA
  • SPDR Nuveen Barclays Capital Municipal Bond (NYSEArca: TFI

Tisha Guerrero contributed to this article.