James Colby has more than 30 years of fixed income experience. Portfolio Manager of Municipal Bond ETFs at VanEck, he is known for his perspective on the U.S. municipal bond marketplace.
"Always borrow money from a pessimist; he doesn't expect to be paid back." -Unknown
Not only aren't investors in municipals pessimists, but these lenders are also optimistic that they'll get their money back with interest. Perhaps this is a reversal of expectations.
Therein lies a tenet of today's financial journalism. I believe most people expect municipal bonds to meet their obligations and repay creditors. When we suddenly find ourselves staring at headlines that trumpet the failings of locations such as Harrisburg, PA, Stockton, CA and Jefferson County, AL, journalists wring their hands, despairing that the standing dominoes will fall.
As many have noted in the past two years, a unique and important feature of municipal investing is the historically low rate of defaults that is in evidence, especially for investment grade rated bonds. Bonds rated below the investment grade spectrum or not rated at all generally have been less likely to fail than their corporate counterparts.
Then why the great concern?
The answer resides somewhere between our emotional attachment to our own communities, which issue bonds, and our distaste for paying taxes. I am guessing that many of us have come to expect that the same government structure that issues munis may seek to protect them from failure. If default ensues, we fail too.
I suggest that we take comfort from the facts at hand. Municipals have been generally stable, and while the ride may get a little bumpy, I believe the highway, built by municipals, will continue to deliver us, and our money, to our destination.
*The Barclays Municipal Bond Index is considered representative of the broad market for investment grade, tax-exempt bonds with a maturity of at least one year. The Long Municipal Bond Index is a sub-set of this broader index.
IMPORTANT MUNI NATION® DISCLOSURE
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 post 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.
All indices listed are unmanaged indices and do not reflect the payment of transaction costs, advisory fees or expenses that are associated with an investment in a fund. An index’s performance is not illustrative of a fund’s performance. Indices are not securities in which investments can be made.
Any discussion of specific securities mentioned in the commentary is neither an offer to sell nor a solicitation to buy these securities.
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 vaneck.com/etfs. Please read the prospectus and summary prospectus carefully before investing.
Van Eck Securities Corporation, Distributor
666 Third Avenue
New York, NY 10017
Munis: High Drama on the High Wire
Munis: Expect More from Your Munis
Munis: Supply Dynamics
Munis: Flattening Yield Curve Supports Performance
Munis: Keep the Pedal to the Metal
Munis: The Compelling Case for Closed-End Municipal Bond Funds
Munis: Muni Market is Generally Healthy Despite Some Headlines
Munis: Muni ETFs in a Portfolio
Munis: Using Muni ETFs to Complement a Portfolio of Bonds
Munis: Utility and Sensibility
Munis: Tune into My Webcast
Munis: An Easy Way to Compare Muni Funds
Munis: Investment Opportunities in the Current Environment
Munis: March Madness?
Munis: Once Upon a Time
Munis: Municipals in 2016
Munis: Potential Puerto Rico Defaults and Reserve Draws
Munis: Go Long for Rising Rates: Just the Facts - Part 2
Munis: Why Duration Matters
Munis: Just the Facts - Part 1
666 Third Avenue
New York, NY 10017
This website 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 website. Nothing on this website 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.
Investing involves risk, including possible loss of principal. An investor should carefully consider investment objectives, risks, charges and expenses carefully before investing. This and other information can be found in the appropriate regulatory documents made available for a specified country as designated in this website.