Muni Bond ETFs Hit on Tax Worries

“The tax-exempt status of municipal bonds, which makes them particularly attractive to high-net-worth investors, is up in the air as Congress wrestles with the fiscal cliff,” Investment News reports. “Any changes to the tax status of the bonds could send notoriously fickle municipal bond fund investors fleeing for the exits.”

However, these rumors have been around for decades and nothing much have come out of them.

While changing the tax policy that applies to munis has been discussed in the past, each time it has induced major pushback from municipal investors and issuers, said Matt Tucker, head of fixed-income strategy at BlackRock’s (NYSE: BLK) iShares.

“While any such change would obviously have an impact on the markets, we do not believe significant tax overhaul that would change municipal bonds’ tax-exempt status is likely to happen,” BlackRock analysts added. “In our view, there is too much support of the current exemptions to allow for drastic changes.” [As the Fiscal Cliff Looms, Investors Favor Muni ETFs]

iShares S&P National AMT-Free Municipal Bond Fund

Update — Full disclosure: Tom Lydon’s clients own BOND.