With equities enduring a pounding due to the COVID-19 outbreak, it’s not surprising that safe-haven plays are thriving. One group that’s really thriving are municipal bonds and the related ETFs. Several of those ETFs, including the SPDR Nuveen S&P High Yield Municipal Bond ETF (NYSEArca: HYMB), hit all-time highs on Tuesday.

HYMB seeks to provide investment results that correspond generally to the price and yield performance of the Bloomberg Barclays Municipal Yield Index.

The fund invests a majority of its total assets in the securities comprising the index and in securities that the Sub-Adviser determines have economic characteristics that are substantially identical to the economic characteristics of the securities that comprise the index. The index measures the performance of USD-denominated high-yield municipal bonds issued by U.S. states, the District of Columbia, U.S. territories and local governments or agencies.

The $1.07 billion HYMB holds just over 1,400 bonds with a current yield of 4.47%.

Highlighting HYMB Obligations

Municipal bonds, also known simply as munis, are debt obligations issued by government entities. Like other forms of debt, when you purchase a municipal bond, you are loaning money to the issuer in exchange for a set number of interest payments over a predetermined period of time. At the end of that period, the bond reaches its maturity date, and the full amount of your original investment is returned to the investor.

Since muni bond interest is exempt from federal taxes, muni ETFs are a good way for investors seeking tax-exempt income, especially those in higher tax brackets. Due to its tax-exempt status, the asset category is also best utilized in taxable accounts.

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

Muni industrial revenue and healthcare bonds combine for almost 47% of HYMB’s weight. Special tax and education bonds combine for 22%.

Related: A Big Yield And a Buffer With This Dividend ETF 

Favorable fundamentals will continue to support the municipal bond market, especially for high-yield munis and related ETFs.

The high-yield, speculative-grade municipal bond segment has held up well this year, despite refinancings that removed a significant portion of bonds out of the high yield secondary universe. Over 43% of HYMB’s holdings are rated Baa or Ba. Just over 11% are rated A and nearly a third aren’t rated.

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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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