A state currently in good standing is California, which was given a raised credit rating from Standard and Poor recently. California passed Proposition 30, which will increase taxes for the next four to seven years. The Governor of California proposed a budget surplus for the coming fiscal year, which should relieve the need for California to raise additional funds. [Muni-Bond ETFs Skid on Risk of Tax Increase]
One of the largest municipal bond ETFs is the iShares National AMT-Free Municipal Bond (NYSEArca: MUB), which gives 22% of the portfolio to California bonds, and yields 1.6%. The second largest muni-bond ETF is the SPDR Nuveen Barclays Municipal Bond (NYSEArca: TFI) which yields 1.7%. As the spread between the Treasury yield and the municipal bond market tightens, the attraction to this area of the market could dissipate as the prospect for positive returns will become smaller.
iShares National AMT-Free Municipal Bond
Tisha Guerrero contributed to this article.