Municipal bond exchange traded funds are enduring the multiple interest rate hikes set forth by the Federal Reserve this year. For example, the Vanguard Tax-Exempt Bond Fund ETF (NYSEARCA: VTEB) is higher by 2.6% year-to-date.
Munis also help diversify fixed-income portfolios. Investors who typically follow the Barclays U.S. Aggregate Bond Index will not have municipal bond exposure, so a muni bond ETF can complement core fixed-income positions.
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. Recently, Japanese investors have gobbled up U.S. munis as a way of generating income as Japan maintains negative interest rates.
VTEB “debuted less than two years ago, meaning this is one of the newest Vanguard bond ETFs. VTEB is Vanguard’s first foray into municipal bond ETFs, though the firm already had a major footprint in the world of municipal bond index and actively managed funds,” according to InvestorPlace.
Looking ahead, the muni market is entering a reinvestment season that could bolster the market, with three consecutive months of significant reinvestment demand generated by coupons, maturities and calls ahead.