The volatility in municipal bond ETFs we saw at the end of 2012 due to speculation on the tax-exempt status of muni bonds and the U.S. fiscal cliff is pretty normal in terms of markets.

Market participants are normally used to seeing corrections, re-settings and re-balancings of opportunities in their markets. The same thing has just happened in the municipal marketplace.

It’s a healthy thing. Investors are going to find yields and opportunities in municipals even more attractive than they were back in October and November. Such has been the correction that’s occurred recently, but it is a healthy correction. [Muni Bond ETFs Keep Tax-Sheltered Status]

Nothing fundamentally has changed, and credit quality remains at the very top of the spectrum relative to other asset classes.

States & Municipalities

The outlook for states and municipalities in 2013 is improving. There are many reasons to be optimistic about the recovery and the health of communities around the country.

Although growth is not robust and we still face significant challenges, all evidence points to increased revenues and tax collections. States and municipalities must balance their budgets.

Constitutionally, they need to produce balanced budgets every fiscal year, which leads to more proactive participation on the part of legislators to actually manage revenues and manage through difficult times. I would say the outlook continues to be fairly positive for all states and municipalities who are issuers of municipal bonds.

Measuring Impacts of Puerto Rico Downgrade

Recently, Moody’s Investors Service downgraded the credit quality of Puerto Rico — the commonwealth’s obligations as well as several other issuers in the commonwealth. The impact of that right now may seem significant because we have had some price dislocation in the market.