Investors will also have to deal with liquidity concerns as the overall munis fund market is $65 billion. Additionally, the underlying municipals market is very illiquid compared to equities, futures or U.S. Treasuries. “It can be difficult to buy in or sell out,” James Colby, senior municipal strategist at Van Eck Global, said in the article.

Additionally, the cumulative default rate on high-yield muni debt since the 1970s is 7.94%, according to Morningstar, whereas the cumulative default rate for investment grade munis is 0.08%. Still, investors are receiving higher yields for the added risks – the Barclays Municipal Bond High Yield Index offered a 5.37% yield as of Oct. 31, compared to the 2.16% yield on the Barclays Municipal Bond Index.

High-yield municipal bond ETF options include:

  • Market Vectors High Yield Municipal Index ETF (NYSEArca: HYD): 4.39% 30-day SEC yield; 0.35% expense ratio; credit quality breakdown includes BAA 25.0%, BA 17.8%, B 29.5% and CAA1/C 3.0%.
  • SPDR Nuveen S&P High Yield Municipal Bond ETF (NYSEArca: HYMB): 4.18% 30-day SEC yield; 0.45% expense ratio; credit quality breakdown includes A 12.2%, BBB 20.4% and below B 44.0%.

Broad municipal bond ETFs include:

  • iShares S&P National Municipal Bond Fund ETF (NYSEArca: MUB): 1.61% 30-day SEC yield; 0.25% expense ratio; credit quality breakdown includes AAA 17.7%, AA 48.4%, A 26.3% and BBB 4.8%.
  • SPDR Barclays Capital Municipal Bond ETF (NYSEArca: TFI): 1.51% 30-day SEC yield; 0.23% expense ratio; credit quality breakdown includes AAA 21.7%, AA 78.0%, A 0.3%.

For more information on the munis, visit our municipal bonds category.

Max Chen contributed to this article.

Subscribe to our free daily newsletters!
Please enter your email address to subscribe to ETF Trends' newsletters featuring latest news and educational events.