Many muni bond ETFs, such as the iShares S&P National AMT-Free Muni Bond ETF (NYSEArca: MUB) and Market Vectors Intermediate Municipal Index ETF (NYSEArca: ITM), are heavily allocated to general obligation (GO) bonds, or bonds that are backed by the credit and taxing ability of a city or state. GO bonds were the type of debt that got Detroit into trouble, now the largest U.S. munis bankruptcy on filing. [BlackRock: Detroit Bankruptcy Check-In: Will Lansing Extend a Lifeline?]
Looking at state municipality exposure, MUB’s portfolio include a large allocation toward California 22.6%, followed by New York 20.5%, Texas 8.6%, Illinois 5.6% and New Jersey 5.5%. The fund’s credit quality includes Moody’s rankings Aaa 8.9%, Aa 13.4%, Aa2 23.5%, Aa3 10.9%, A1 17.6%, A2 7.5%, A3 3.6% and Baa1 2.5%. [Despite Detroit Scare, Municipal Bond ETF Credit Risk Remains Muted]
ITM includes large exposures to New York 19.5% and California 13.5%, along with New Jersey 5.1% and Illinois 4.0%. The ETF’s credit quality breakdown includes AAA 15.6%, AA 57.5%, A 25.8% and BBB 2.2%.
For more information on the munis market, visit our municipal bonds category.
Max Chen contributed to this article.