Fixed-income investors should moderate their municipal bond exchange traded fund outlook after an unprecedented nine consecutive months of gains pushed benchmark yields below two percent and states begin to increase financing on the cheap.
Year-to-date, the iShares National AMT-Free Muni Bond ETF (NYSEArca: MUB) and SPDR Nuveen Barclays Municipal Bond ETF (NYSEArca: TFI) have increased 8.8% and 8.9%, respectively. [Time to Temper Your Municipal Bond ETF Expectations]
So far this month, muni debt has gained 1.2%, rising at its fastest fastest pace for October since a 1.4% return in 2001, reports Brian Chappatta for Bloomberg. Meanwhile, benchmark 10-year muni yields touched 1.94% on Oct. 16, its lowest level since May 2013.
MUB, which has a 6.37 year effective duration, shows a 1.6% 30-day SEC yield, or a 2.82% taxable equivalent SEC yield for those in the highest income bracket. TFI, which has a 7.28 year duration, shows a 1.85% 30-day SEC yield, or a 3.27% taxable equivalent yield.
With the muni debt market looking a little frothy, some are beginning to trim back their exposure.
“We’ve taken a little bit off the table in the last few days,” Peter Hayes, head of munis at New York-based BlackRock, said in the article. “Nobody really expects rates to rally significantly from here. In fact, I think everybody is waiting for a little bit of a pullback. That’s what we’ll wait for.”
The munis market has been steadily gaining as a dearth in supply and rising demand helped support prices. States and cities have issued $219 billion in fixed-rate, long-term debt this year, or 8% below last year’s level.