“There are still good opportunities at the national level in the muni market and this is not an asset class you want to abandon, because the tax equivalent yield is still very competitive compared to the rest of the bond market,” Russ Koesterich, chief investment strategist for BlackRock, said in the article. [iShares: How Detroit’s Bankruptcy Affects Bond ETFs]
Moreover, muni funds also include a diversified portfolio of general-obligation bonds and essential-purpose bonds, such as water or sewage treatment bonds that support self-sufficient utilities. General obligation bonds use available resources, including tax revenues, to repay bond holders. After the Detroit case, the general-obligation side could become less-secure. [Muni Bond ETFs: Detroit City Blues]
ETF investors can comb through a number of muni related funds to gain diversified exposure to municipal bonds. Additionally, investors can avoid general-obligation bonds with the recently launched db X-trackers Municipal Infrastructure Revenue Bond ETF (NYSEArca: RVNU), the first ETF to focus on the space.
For more information on munis, visit our municipal bonds category.
Max Chen contributed to this article.