Colby is Portfolio Manager/Municipal Bond ETFs with more than 30 years of fixed income experience.
Municipal yield curve steepness was a significant contributor to 2011 municipal bond returns, and it currently remains so. Because recent changes in yields have been fairly consistent across maturities, the intermediate part of the curve (10 to 14 years) — where yield differences of as much as 25 basis points currently exist between each maturity — continues to be a focal point. Thus, investors should consider how best to assess the combined risks associated with credit and maturity.Municipal Market Advisors (MMA) recently noted that YTD returns from bonds with a duration of 10 years and shorter had provided less than 15% of all municipal bond market returns, while those with a duration of 20 years and longer had generated 25%. This seems logical to me given that, in my opinion, the Federal Reserve is likely to continue to hold short-term rates at low levels as long as inflation is contained. Investors must consider that the risk measured by the difference in duration of intermediate versus longer-term bonds exposes them to potential price declines exceeding 50% when rates rise. That risk drops to 29% with intermediates.1 The ability to swiftly adjust strategy when market conditions change is also important.The market has demanded yield. High-yield muni mutual funds and ETFs have continued to see inflows, pushing prices higher. Evidence suggests that muni bond investors are using strategies that encompass a combination of intermediate to long duration and high yield to accomplish their goals in today's market.
1 As of 5/10/12. The difference in interest rate risk, as measured by modified adjusted duration, between intermediate and long (Barclays Capital 10-Year Municipal Index and Barclays Capital 20-Year Municipal Index) is 5.89 versus 9.66 = 64% greater interest rate sensitivity. Modified Adjusted duration calculated by Barclays Capital.
IMPORTANT MUNI NATION® DISCLOSURE
Van Eck Global 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-Van Eck Global 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 Van Eck Global. 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.
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 888.MKT.VCTR | 888.658.8287. Please read the prospectus and summary prospectus carefully before investing.
Van Eck Securities Corporation, Distributor
666 Third Avenue
New York, NY 10017
888.MKT.VCTR | 888.658.8287
Market Vectors High-Yield Municipal Index ETF
Market Vectors Intermediate Municipal Index ETF
Market Vectors Short High-Yield Municipal Index ETF
Market Vectors CEF Municipal Income ETF
Munis: “Fed” and Fed Up?
Munis: A Better Road for Tomorrow
Munis: Value Seen in Muni Bond Closed-End Funds
Munis: Video Viewpoint with Colby
Munis: Back to Fundamentals
Munis: Stirred, Not Shaken
Munis: Summer of Discontent
Munis: No Summer Doldrums
Munis: Value in Municipal Closed-End Funds?
Munis: Halftime Perspective
Munis: Puerto Rico at a Crossroads
Munis: Infrastructure, All Talk?
Munis: 2Q'15 - No June Swoon But Finish Strong?
Munis: Talking Points on Chicago Downgrade
Munis: Update on the Commonwealth
Munis: The Impact On States From Oil’s Downturn
Munis: A Thought About Tax Day
Munis: A Market in Transition
Munis: Embrace Supply and Stay the Course
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.