Municipal Bonds: Change is Here | ETF Trends

By Jim Colby, Portfolio Manager, VanEck Global


As you all know, we have long extolled the virtues of the municipal bond market in simple terms: an approximately $4 trillion marketplace that, we believe, is highly diversified (across approximately 50,000 issuers), high quality, has a low incidence of default and is a source of income that is generally free from federal taxes. Now, there is another element to be added under this banner, which is likely to appeal greatly to investors: acute attention to the risks of climate change.

As discussed in a recent Bloomberg Daily Brief[1] from Joe Mysak, as well as industry conferences across the country, climate change issues and concerns are now finding a prominent place in the representation of Issuer Risks in Preliminary and Final Official Statements. Preliminary and Final Official Statements are the legal and contractual documents issuers convey to bankers and underwriters to bring bonds to the market for sale. They can be several hundred pages long, addressing myriad topics relevant to both the execution of the promise to pay and the determination of credit quality.

Now, to their credit, more disclosure relevant to climate change specific to the issuers of the bonds is finding its way into these documents. Not only do states and municipalities who issue municipal bonds find themselves having to address climate change risk, it is now falling to the rating agencies to incorporate this risk into their template for assessing creditworthiness and future ability to repay debt.

This quotation from the aforementioned Bloomberg Daily Brief makes the point. Though climate change has been with us for decades, change for the better, for the muni market, is here as well:

“These details are all contained in the lengthy Risk Factors or Investment Considerations sections in the offering documents to their bond issues, priced within the last few weeks, and in Hawaii’s case ($105 million highway revenue bonds), this week. Such a level of disclosure remains the exception, but keep in mind climate change didn’t really become a thing in MuniLand until relatively recently.”[2]

[1] Bloomberg Briefs: DAILY BRIEF: MUNI, Diary, Water, Wildfire Spur Climate Change Disclosure, November 12, 2019

[2] Ibid.



This content is published in the United States for residents of specified countries. Investors are subject to securities and tax regulations within their applicable jurisdictions that are not addressed on this content. Nothing in this content should be considered a solicitation to buy or an offer to sell shares of any investment in any jurisdiction where the offer or solicitation would be unlawful under the securities laws of such jurisdiction, nor is it intended as investment, tax, financial, or legal advice. Investors should seek such professional advice for their particular situation and jurisdiction.

VanEck does not provide tax, legal or accounting advice. Investors should discuss their individual circumstances with appropriate professionals before making any decisions. This information should not be construed as sales or marketing material or an offer or solicitation for the purchase or sale of any financial instrument, product or service.

Please note this represents the views of the author and these views may change at any time and from time to time. MUNI NATION is not intended to be a forecast of future events, a guarantee of future results or investment advice. Current market conditions may not continue. Non-VanEck proprietary information contained herein has been obtained from sources believed to be reliable, but not guaranteed. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission of VanEck. MUNI NATION is a trademark of Van Eck Associates Corporation.

Municipal bonds are subject to risks related to litigation, legislation, political change, conditions in underlying sectors or in local business communities and economies, bankruptcy or other changes in the issuer’s financial condition, and/or the discontinuance of taxes supporting the project or assets or the inability to collect revenues for the project or from the assets. Bonds and bond funds will decrease in value as interest rates rise. Additional risks include credit, interest rate, call, reinvestment, tax, market and lease obligation risk. High-yield municipal bonds are subject to greater risk of loss of income and principal than higher-rated securities, and are likely to be more sensitive to adverse economic changes or individual municipal developments than those of higher-rated securities. Municipal bonds may be less liquid than taxable bonds.

The income generated from some types of municipal bonds may be subject to state and local taxes as well as to federal taxes on capital gains and may also be subject to alternative minimum tax.

Diversification does not assure a profit or protect against loss.

Investing involves substantial risk and high volatility, including possible loss of principal. Bonds and bond funds will decrease in value as interest rates rise. An investor should consider the investment objective, risks, charges and expenses of a fund carefully before investing. To obtain a prospectus and summary prospectus, which contain this and other information, call 800.826.2333 or visit Please read the prospectus and summary prospectus carefully before investing.