Despite concerns of a rising rate environment, municipal bonds and related exchange traded funds continue to rally, with yields at their lowest in 11 months on a dearth in new local and state debt issuance.
The iShares National AMT-Free Muni Bond ETF (NYSEArca: MUB) has gained 5.3% year-to-date. [ETF Chart of the Day: Marvelous Munis]
Meanwhile, benchmark 10-year Muni bond yields are hovering around 2.35%, the lowest level since June, reports Brian Chappatta for Bloomberg. Bond prices and yields have an inverse relationship.
Munis have strengthened on renewed demand for fixed-income securities and the lowest new municipal bond issuance in three years, outperforming Treasuries, corporate debt and the broader stock markets.
State and local issuance through May 2 was only $86 billion, the lowest amount of new sales since 2011. On the demand side, investors have increased assets into muni-related funds in 12 of the 17 weeks this year, according to Lipper.
“High-grade munis is a momentum sector,” Vikram Rai, a fixed-income strategist at Citigroup Inc., said in the article. “It’s not cheap by any standard.”