Muni Bond ETFs Offer a Stable Source of Income

Fixed-income investors can still find stable returns with municipal bonds and related ETFs

For example, something like the VanEck Vectors AMT-Free Intermediate Municipal Index ETF (NYSEArca: ITM), which has a 6.93 year effective duration, shows a 2.58% 30-day SEC yield or a 4.10% taxable equivalent 30-day SEC yield for those in the highest tax bracket.

“Muni bonds continue to offer a fiscally sound vehicle for deriving an income stream free from federal and, in some cases, state taxes,” Michael Cohick, Senior ETF Product Manager at VanEck, said in a note.

Moody’s Investors Service’s recently released its annual municipal bond market snapshot with updated data through 2017, which reaffirmed two benchmark benefits that the asset category continue to provide: Muni bonds are still to be highly rated in 2017, with upgrades outpacing downgrades for a second year running, and municipal bankruptcies or defaults remain extremely low, despite headline-news of defaults from Puerto Rican entities.

“As best one can tell from Moody’s study, there are no red flags flying over the industry. True, not all public sector projects succeed, but more conservative fiscal management coming out of the deep recession of 10 years ago seems to be the backstory. Ride the wave!” Cohick added.

Munis Appear Stable & Recovering

Cohick pointed out that nearly a decade after the Great Recession, munis appear stable and recovering, aided in part by a growing economy in many regions of the U.S.