This takes us to the third part of the story: muni bond ETFs.

Last week, the Financial Times reported that State Street temporarily suspended cash redemptions in its muni bond products. State Street resumed cash redemptions on Friday after the previous day’s halt, although in-kind redemptions were accepted on both days, according to the FT. [Muni Bond ETF Sell-Off Reaches Sixth Day as Discounts Linger]

Muni bond ETFs were down again Monday and continued to trade at discounts to net asset value. ETFs tracking illiquid asset classes can deviate away from the NAV of the underlying market in volatile markets.

“The move down in price has been so fast that the net asset values haven’t yet been able to catch up with it,” Matt Fabian, a managing director at Municipal Market Advisors, told Bloomberg.

SPDR Nuveen S&P High Yield Municipal Bond ETF (NYSEArca: HYMB), which is managed by State Street, was trading at a 7.6% discount to intraday indicative value on Monday, according to Morningstar data.

The bottom line is that investors shouldn’t think an ETF’s listing on a U.S. stock market will shield them from turmoil or lack of liquidity in a fund’s underlying market, David Nadig director of research at IndexUniverse, said in the report.

“In times of market turmoil, you see stress on the creation-redemption process,” he added. “As soon as you see uncertainty, you’ll start to see things spread out in ETFs that have questionable liquidity to start with.”