Municipal bond exchange traded funds have been performing quite well over the past few years as investors sought yield options beyond Treasuries. However, muni bond investors should expect lower returns in 2013, according to BlackRock (NYSE: BLK).
Peter Hayes, BlackRock’s head of muni debt, expects municipal bonds to generate lower returns in 2013 than the prior two years, as yields hit a 47-year low, Bloomberg reports. Bond yield and price have an inverse relationship, so a falling yield corresponds with higher prices.
Yields on municipal debt have dropped as investors sought safe-haven diversification beyond Treasuries and a tax-free investment ahead of the federal tax increases. [Muni Bond ETFs Keep Tax-Sheltered Status — For Now]
According to the Bank of America Merrill Lync index, munis gained 18% in the last two years combined, the most since the 2000-2001 period.