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Muni ETFs just posted record inflows. Jim Colby on why low volatility, strong risk-adjusted returns, and tax-advantaged yields keep drawing investors in.
VanEck Long Muni ETF offers tax-free income by investing in long-term, investment-grade municipal bonds, appealing to higher-rate taxpayers. MLN minimizes credit risk but exposes investors to significant interest rate risk due to its long bond maturities, impacting returns during rate hikes. The fund's conservative credit approach may miss opportunities, as default rates in the muni market are very low and unrated bonds can offer higher yields without much added risk.
Fund-level leverage is only attractive when carry or capital gains potential is high; current tight spreads and an inverted yield curve make it less appealing. For tax-exempt CEFs, higher yields often come from longer duration, not leverage; unleveraged long-duration funds or ETFs can offer similar or better yields. Investors should not assume more leverage is always better; careful, situation-specific exposure to fund-level leverage is key to balancing risk and return.
Compare corporate and municipal bonds, including risks, returns, and tax benefits. Learn which bond type fits your investment goals.
Municipal bonds are back to offer compelling risk-adjusted opportunities, but future decisions from Washington can either act as a tailwind or headwind. Municipal bond funds saw net inflows during 2024, first annual inflow since 2021—which was a record year. 2024 was a record year in municipal bond issuance. With attractive yields, the market may start to pay more attention to tax-equivalent yield advantages offered through municipal debt.
The Federal Funds rate has held steady at 5.33% for over a year, but the Federal Reserve is now signaling that this period may be coming to an end. Long-term municipal bonds are emerging as a strong alternative to Treasuries. Municipal bonds are exempt from federal taxes and, in some cases, exempt from state and local taxes. The supply of municipal bonds has gotten off to a big start this year. Even with the possibility of lower rates in the future, issuers have issued more new debt than ever in the last decade.
RED LOBSTER- HAS RECEIVED A $100 MLN DEBTOR-IN-POSSESSION ("DIP") FINANCING COMMITMENT FROM ITS EXISTING LENDERS
By Patrick Schramm, ETF Strategist Discover why savvy investors are starting to cool on Tbills and where they're turning next for greater returns in a market poised for change. 2023 was quite a year for advisors.