There are other factors weighing on muni bond ETFs.
Kevyn Orr, Detroit’s emergency manager, recently announced the troubled city would miss a $40 million unsecured-bond payment, The Economist reports.
“Detroit would be the largest-ever American city to go bust, but hardly the first,” The Economist said. “America’s $3.7 trillion muni-bond market has long had its doomsayers. Is this their moment? The situation remains grim.”
Muni bond sales were postponed this week due to market conditions. “Most likely issuers will wait for the market to stabilize in the next few days or weeks before coming back,” Reuters reported.
The ETF discounts highlight the selling pressure in muni bonds.
On Thursday, State Street stopped accepting cash redemption orders for municipal bond ETFs from dealers, the Financial Times reports.
The bond market is “notoriously illiquid with many bonds trading infrequently or rarely which makes intra-day valuations difficult, particularly in times of increased market volatility,” reports Chris Flood for the FT. State Street “had decided on Thursday to remove that cash trading facility to protect existing investors in its muni bond ETF range but in-kind creations and redemptions were unaffected.”
Typically, only about 2% of the muni market is traded on any given day, making ETF discounts common during times of high volatility.
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For more information on munis, visit our municipal bonds category.
Max Chen contributed to this article.