Investors Flocking to High Yield Muni ETFs

Municipal bonds and related exchange traded funds have been among the top performers in the fixed income space this year as declining Treasury yields have lifted muni bonds following last year’s decline at the hands of surging Treasury yields.

Those falling Treasury yields and a strengthening U.S. economy are encouraging investors to hunt for higher yielding muni bonds with ETFs such as the $934.1 million Market Vectors High Yield Municipal Index ETF (NYSEArca: HYD).

HYD, which allocates over 40% of its portfolio to muni issues rated BB or B, has a 30-day SEC yield of 5.46%. By comparison, the iShares National AMT-Free Muni Bond ETF (NYSEArca: MUB) allocates 53% of its weight to munis that are rated AAA, AA+ or AA by Standard & Poor’s. The result is a 30-day SEC yield of just 2.08%. [More Upside for Muni ETFs]

HYD has added about $100 million this year, the most among 42 ETFs focusing on state and local debt, Michelle Kaske reports for Bloomberg.

Since the start of this month, HYD has pulled in nearly $59 million in new assets while investors have poured almost $11 million into the rival SPDR Nuveen S&P High Yield Municipal Bond ETF (NYSEArca: HYMB). HYMB has a 30-day SEC yield of 4.86%, but its modified adjusted duration of 9.76 years is slightly lower than the 9.96 years found on HYD.

Over the past 90 days, HYD and HYMB have returned an average of 5% nearly double the 2.7% returned by MUB. High-yield muni ETFs have also been easily outpacing junk bond ETFs over the same period.