Municipal bond ETFs are climbing, with muni yields retreating at their quickest pace in at least nine years, as Congress and the White House move toward a $2 trillion stimulus package to prop up the economy.
The iShares National Muni Bond ETF (NYSEArca: MUB), the largest muni-related ETF by assets, increased 4.4% on Wednesday.
Munis are strengthening with yields sliding sharply across maturities after lawmakers reached an agreement on a massive spending package and tax breaks to alleviate the economic fallout from the coronavirus or COVID-19 outbreak that has shut down industries across America and kept many people at home. The stimulus package includes about $500 billion that can be used to back loans and assistance to companies, as well as state and local governments, Bloomberg reports.
The drop off in municipal bond yields was the biggest since Bloomberg’s benchmark indices began tracking in 2011 and were roughly twice as big as the dip on Tuesday when securities gained by the most since at least the financial downturn of 2008. Bond prices and yields have an inverse relationship, so falling yields reflect rising prices.
“The stimulus will be very helpful to the overall market,” James Iselin, a portfolio manager at Neuberger Berman Group, told Bloomberg. “The stimulus will inspire confidence that a bridge is being built to help get us to the other side as we continue to deal with challenges resulting from this unprecedented moment.”
The two-day rally helped break a precipitous plunge in the $3.9 trillion muni market as investors yanked cash out of the asset at a record-setting pace on fears about how the coronavirus would affect cities, airports, hospitals, and others that have issued tax-exempt bonds. The resulting retreat saddled many borrowers with skyrocketing interest bills on floating-rate debt and effectively shut down the market for new debt issues.
”People are finally taking a breather and saying, ‘were we too hard on credit?’” Jason Appleson, a portfolio manager for PT Asset Management LLC, told Bloomberg.
Now, bargain hunters are swarming back into this pummeled segment of the debt market.
“There are absolutely screaming values in the municipal space at this point provided one has the intestinal fortitude to ride out the volatility,” Tom McLoughlin at UBS told the Financial Times. “You are not reaching for yield anymore. It is being offered to you.”
iShares National Muni Bond ETF
For more information on the munis market, visit our municipal bonds category.