Muni bond ETFs have also faced recent bouts of volatility on concerns the asset class may lose its tax advantages.
“In general municipal-bond funds are most suitable for use in taxable accounts by investors in high tax brackets. The reason is that interest income from municipal bonds is tax-exempt at the federal level,” Morningstar’s Strauts explains. [Muni Bond ETFs on the Mend Despite Renewed Tax Worries]
“Over the last week, municipal bonds have been back in the headlines as the city of Detroit, Michigan has declared that it will be unable to make payments on a portion of its debt,” writes David Fabian at Fabian Capital Management. “Their restructuring proposal has asked bond holders to be repaid less than 10 cents on the dollar. While defaults on muni bonds are rare, there have been several high profile instances of insolvent municipalities or debt restructuring demands over the last several years that have shaken investors’ confidence in these securities. In addition, the recent rise in interest rates has caught many fixed-income holders off guard as the price of their bonds has receded.”
iShares National AMT-Free Muni Bond ETF
