The Ides of March came calling for municipal bonds. State- and city-issued debt joined gold and consumer staples stocks as asset classes that betrayed their safe-haven reputations in March.
A broad measure of municipal bonds slipped more than 2% last month. This is an usually large move for these bonds in such a short timeframe. Undoubtedly, municipal bond investors don’t sign up for 2%+ losses in the span of a month, but there’s a silver lining in that last weakness may signal opportunity with ETFs such as the ALPS Intermediate Municipal Bond ETF (MNBD).
A month isn’t a long period of time with municipal bonds. Still, MNBD deserves some credit. It performed less poorly than the largest ETF in this category over the past month. Year-to-date, the ALPS ETF is sporting a modest gain while its passive rival is in the red.
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“The tax-free bonds, which fund everything from sewerage authorities to airports, had their worst performance in nearly three years last month, losing 2.32%. Investors sold their muni holdings as U.S. Treasury yields rose in response to the Iran war,” reported Patti Domm for Barron’s. “The market was also stressed by investors trading out of exchange-traded funds at the same time a large amount of new muni bonds were being issued.”
MNBD for the Long-Term
Experienced fixed income investors know that bonds in general are long-term investments and that’s particularly true with munis. Investors can take comfort in knowing there’s a human touch behind this fund. This element potentially makes the fund more appealing for buy-and-hold market participants.
“For longer-term buy-and-hold investors, munis’ bad month means buying opportunities may be around the corner, especially as investors seek high-quality, U.S.-focused assets during a time of broad geopolitical uncertainty,” added Domm in the Barron’s article.
Another point in favor of MNBD is that as an actively managed it more rapidly lean into credit opportunities than a passively managed rival. Or in this environment where prudence may be rewarded, MNBD can move swiftly to elevate its credit profile. Fortunately, credit trends in the muni universe are largely favorable.
“Munis’ credit quality improved after the Covid-19 pandemic, with ratings upgrades outpacing downgrades three to one. Balance sheets of state and local governments were helped by the federal government’s pandemic-related stimulus spending and steady tax revenue,” according to Barron’s.
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