Municipal debt and bond-related exchange traded funds may not be glamorous, but local debt securities are outperforming corporate bonds and giving many other assets a run for their money.
For instance, the iShares National AMT-Free Muni Bond ETF (NYSEArca: MUB), which has a 4.72 year duration and a 1.64% 30-day SEC yield or a 2.89% taxable equivalent 30-day SEC yield for those in the highest income bracket, gained 1.2% year-to-date. The SPDR Nuveen Barclays Municipal Bond ETF (NYSEArca: TFI), which has a 7.94 year duration and a a 1.97% 30-day SEC yield or 3.47% taxable equivalent yield, rose 1.7% this year. The Market Vectors Intermediate Municipal Index ETF (NYSEArca: ITM), which has a 7.13 year duration and a 2.12% 30-day SEC yield or a 3.51% taxable equivalent 30-day SEC yield, added 1.5% so far this year.
Meanwhile, the iShares iBoxx $ Investment Grade Corporate Bond ETF (NYSEArca: LQD), which has a 8.02 year duration and a 3.48% 30-day SEC yield, dipped 0.6% year-to-date.
According to Barclays PLC data, muni bonds are returning about 2% this year, outpacing corporate bonds and many other supposedly higher-performing assets, reports Aaron Kuriloff for the Wall Street Journal.
Munis have been strengthening despite default concerns from Puerto Rico, which many investors believe is management compared to volatility associated with a potential pullback in riskier assets like stocks.
“At a time of low returns and high volatility, investors have seemed to shake off any woes potentially facing munis based on positive flows,” Michael Cohick, ETF product manager at Van Eck Global, told ETF Trends. “The durability of the asset class has persisted even in the face of challenges throughout the year.”
Investor concerns have diminished after the Federal Reserve held back on an interest rate hike and demand for munis rose. Investors funneled more money into muni funds in five of the past six weeks after withdrawing more than they put in every month from May to September, according to Lipper data. Muni bond funds have attracted about $2 billion for the year ended October. [Fed Feeds Muni Bond ETFs Inflows]