Standard & Poor’s ratings agency upgraded New York’s credit rating to the second-highest investment grade level, the state’s highest rating since 1972. Investors interested in gaining exposure to the state’s debt offerings may browse New York municipal bond exchange traded fund options and broad muni ETFs with a sizable weight to the state.
S&P raised New York’s credit rating to AA+ from AA, pointing to the state’s strong fiscal management after Governor Andrew Cuomo won his fourth consecutive on-time budget, reports Brian Chappatta for Bloomberg.
The update reflects the state’s “recent history of improved structural budget balance with a strong focus on spending restraint and on-time budgets,” S&P analyst David Hitchcock wrote in a report.
Moody’s Investor Service also upgraded the state’s credit rating to the second-best rank of Aa1 last month.
Bond investors interested in gaining exposure to the investment-grade New York muni market can take a look at a few ETF options, including the iShares New York AMT-Free Muni Bond ETF (NYSEArca: NYF), PowerShares New York AMT-Free Municipal Bond Portfolio (NYArca: PZT) and SPDR Nuveen Barclays NY Muni Bond (NYSEArca: INY).
NYF allocates 25.3% in AAA-rated debt, 55.4% in AA, 8.8% in A and 4.0% in BBB – anything above BBB is considered investment-grade quality. The iShares ETF has a 5.87 year duration, a 1.93% 30-day SEC yield, or a 3.73% taxable equivalent 30-day SEC yield, and a 0.25% expense ratio.
PZT weights AAA-rated munis at 5%, AA at 89% and speculative-grade B 1%. The PowerShares offering has a 7.05 year duration, a 2.68% 30-day SEC yield and a 0.28% expense ratio.
The State Street offering provides the highest tilt toward high-quality New York munis. INY includes a 28% allocation toward Aaa-rated debt and 72.0% toward Aa bonds. The ETF has a 8.29 year duration, a 2.36% 30-day SEC yield, or a 4.57% taxable equivalent 30-day SEC yield, and a 0.20% expense ratio.
Alternatively, investors can consider broad investment-grade municipal bond options, like iShares National AMT-Free Muni Bond ETF (NYSEArca: MUB), which include a small weight toward New York issued debt. New York is the second largest state allocation in MUB at 20.6% of the portfolio. MUB has a 6.07 year duration, a 1.88% 30-day SEC yield, or a 3.32% taxable equivalent 30-day SEC yield, and a 0.25% expense ratio. [Muni ETFs Look Cheap After Puerto Rico Induced Sell Off]
For more information on the munis market, visit our municipal bonds category.