The iShares National AMT-Free Muni Bond ETF (NYSEArca: MUB) has been trading at a discount to its underlying holdings for a record-long period as muni investors continue to worry about the potential impact of rising interest rates and fallout from Detroit’s recent bankruptcy filing.

MUB, the largest ETF in the category with $3.2 billion of assets, has been trading at a discount to its net asset value for 60 consecutive days, Bloomberg News reported Thursday.

The muni bond ETF saw a 1% discount to intraday indicative value on Thursday morning, according to Morningstar. [iShares: Munis, Michigan and the Consequence of Choice]

Bart Mosley, co-president of Trident Municipal Research, told Bloomberg the current discount may persist for the next few weeks, reflecting concern that interest rates will rise further if the Federal Reserve cuts its bond purchases. [Bond ETFs and Illiquid Markets]

“Although munis are getting interesting, there might be a better entry point down the road when there’s more clarity in the rate cycle,” said Matthew Tucker, head of iShares fixed-income strategy, in the report.

Some bond ETFs have traded at discounts to underlying value this year as interest rates rise. In particular, funds tracking the more illiquid sectors of the bond market can see premiums and discounts. These can be due to price discovery as the ETFs trade in real time while the underlying holdings may not have transacted in days, or sometimes weeks. [Digging Deeper Into Bond ETF Pricing, Liquidity]

iShares National AMT-Free Muni Bond ETF

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