As Fed Delays Hike, Muni Bond ETFs Hit Highs

With the Federal Reserve delaying its interest rate hike, municipal bond exchange traded funds maintained their momentum, with benchmark yields dipping to new lows.

The iShares National AMT-Free Muni Bond ETF (NYSEArca: MUB) was slightly higher Wednesday, ending in the black for the 12th session in a row. MUB is up 3.2% year-to-date.

Broad investment-grade municipal bond ETFs, including MUB, SPDR Nuveen Barclays Municipal Bond ETF (NYSEArca: TFI) and Market Vectors Intermediate Municipal Index ETF (NYSEArca: ITM), were all trading at new 52-week highs. Year-to-date, TFI gained 4.0% and ITM rose 3.6%.

Additionally, high-yield muni ETFs, including VanEck Vectors High Yield Municipal Index ETF (NYSEArca: HYD) and SPDR Nuveen S&P High Yield Municipal Bond ETF (NYSEArca: HYMB), also hit 52-week highs. HYD increased 5.5% and HYMB advanced 5.7% so far this year.

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The muni market rallied, with the yield on an index of 10-year AAA-rated municipal bonds fell to 1.48%, the lowest since Bloomberg data began in January 2009, reports Brian Chappatta for Bloomberg.

The tax-exempt muni market has strengthened for 11 consecutive months as investors continued to pile into the fixed-income market without the Federal Reserve signalling higher interest rates anytime soon. The Fed left rates unchanged Wednesday and signaled it still planned on two rate hikes this year, despite slowing economic growth.

“We are quite uncertain about where rates are heading in the longer term,” Fed Chair Janet Yellen told a news conference after the rate decision.

Municipal bonds continue to experienced robust demand from U.S. investors as reliable source of yield, especially among taxable accounts due to the debt securities’ favorable tax-exempt status.