Seasonal trends have an array applications across multiple asset classes, including municipal bonds. Municipal bonds typically weaken during the fourth quarter, but that does not mean fixed income investors should ignore these bonds and the related ETFs.

Popular municipal bonds ETFs include the iShares National AMT-Free Muni Bond ETF (NYSEArca: MUB) and the SPDR Nuveen Bloomberg Barclays Municipal Bond ETF (NYSEArca: TFI).

“The fall months are typically weak for muni bonds and although this year has generally bucked seasonal trends, it looks that way again this year,” reports CNBC. “True to form, muni bonds have been sliding. The Bloomberg Barclays Municipal Bond Index is down 1.43 percent since the end of August and now has a return of -1.11 percent for the year. That won’t help send your kids to college, but relatively speaking, it’s a pleasant surprise in an otherwise rough year for bond investors.”

Related: Top 56 High Yield Bond ETFs

Muni Factors To Consider

Munis also help diversify fixed-income portfolios. Investors who typically follow the Barclays U.S. Aggregate Bond Index will not have municipal bond exposure, so a muni bond ETF can complement core fixed-income positions.

The Federal Reserve has boosted interest rates three times, weighing on an array of longer-dated bonds. Municipal bonds have not been immune to those declines as MUB and TFI are down an average of 2% year-to-date.

“In the rising interest rate environment, the muni index decline compares very well with U.S. Treasury bonds -2.12 percent and U.S. investment grade corporate bonds -3.1 percent, through Oct. 16,” according to CNBC.

Subscribe to our free daily newsletters!
Please enter your email address to subscribe to ETF Trends' newsletters featuring latest news and educational events.