For seven straight months, fixed income investors turned to municipal bonds over Treasuries, putting the spotlight on three VanEck ETFs investors can consider.

“America’s municipal bonds are staging their longest winning streak against Treasuries in seven years,” said a Bloomberg article.

“State and local debt has benefited from a surge of cash in 2021 that’s showed no signs of letting up, with President Joe Biden’s plans for higher taxes on the wealthy catalyzing demand for the bonds that pay tax-free interest,” the article added. “That flood of money has helped municipal returns’ beat Treasuries for seven straight months through April, with state and local debt posting a gain of 0.8% last month, according to Bloomberg Barclays indexes.”

With taxes on investors’ minds, one fund worth noting is the VanEck Vectors CEF Municipal Income ETF (XMPT). The ETF seeks to replicate as closely as possible the price and yield performance of the S-Network Municipal Bond Closed-End Fund Index.

The fund normally invests at least 80% of its total assets in investments from which the income is exempt from U.S. federal income tax (other than federal alternative minimum tax). The CEFMX Index is comprised of shares of U.S.-listed closed-end funds.

For fixed income investors seeking more yield, there’s the VanEck Vectors High Yield Muni ETF (HYD). The fund seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the Bloomberg Barclays Municipal Custom High Yield Composite Index, which is comprised of publicly traded municipal bonds that cover the U.S. dollar denominated high yield long-term tax-exempt bond market.

For a high yield option without duration risk, there’s the VanEck Vectors Short High Yield Muni ETF (SHYD). SHYD seeks to replicate as closely as possible the price and yield performance of the Bloomberg Barclays Municipal High Yield Short Duration Index, which is composed of publicly traded municipal bonds that cover the U.S. dollar denominated high yield short-term tax-exempt bond market.

XMPT Chart

Strength to Continue for Munis

Muni yields have already ticked higher, causing prices to fall, but the overall muni market is expected to see more strength, as well as a possible May rally.

Analysts posit that investor demand should curb any forthcoming bond price correction. Munis could also be helped by rising interest rates, which the capital markets are already anticipating.

“Even if rates sell off further, tax-exempts will likely follow, but should outperform, supported by a combination of low supply, strong inflows, heavy bond redemptions over the course of the summer; large cash cushions of mutual funds; and improving credit quality of municipal bonds,” said Barclays strategists.

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