The Coronavirus is Bringing Some Unforeseen Volatility to Munis

In the U.S. bond markets, municipal debt is seen as some of the most stable given that they’re backed by local governments albeit at lower-than-junk yields as most would expect. However, the coronavirus pandemic is injecting a healthy dose of unforeseen volatility in municipal bonds as mass-market moves are forcing investors to think twice about their stability.

This was readily apparent during the month of March, which saw the most market swings.

“March’s volatility has led to some of the widest price swings the market has seen since benchmark data was created and it continues as the second quarter begins,” a Bond Buyer report noted. “Large block trades were showing massive swings in yield and AAA benchmark yields on various scales rose by 40 to 50 basis points from 10 years and out while the short end wasn’t spared either, seeing cuts of 16 to 35 inside 10 years.”

Nonetheless, municipal bonds opportunities via exchange-traded funds (ETFs) are still an option to get local government debt exposure—still a solid bet despite the latest volatility. Investors looking to get in on municipal bonds can give the following funds a look:

  1. VanEck Vectors AMT-Free Long Municipal Index ETF (BATS: MLN): seeks to replicate the price and yield performance of the Bloomberg Barclays AMT-Free Long Continuous Municipal Index. The index is comprised of publicly traded municipal bonds that cover the U.S. dollar-denominated long-term tax-exempt bond market.
  2. Xtrackers Municipal Infrastructure Revenue Bond ETF (NYSEArca: RVNU): seeks investment results that correspond generally to the performance of the Solactive Municipal Infrastructure Revenue Bond Index. The underlying index is comprised of tax-exempt municipal securities issued by states, cities, counties, districts, their respective agencies, and other tax-exempt issuers.
  3. Franklin Liberty Municipal Bond ETF (NYSEArca: FLMB):  seeks a high level of current income that is exempt from federal income taxes. Although the fund tries to invest all of its assets in tax-free securities, it is possible that up to 20% of the fund’s net assets may be in securities that pay interest that may be subject to the federal alternative minimum tax and, although not anticipated, in securities that pay interest subject to other federal or state income taxes.
  4. SPDR Nuveen S&P High Yield Municipal Bond ETF (NYSEArca: HYMB): seeks to provide investment results that correspond generally to the price and yield performance of the Bloomberg Barclays Municipal Yield Index. It 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.

For more relative market trends, visit ETF Trends.