• Muni Nation


    Jim Colby, Portfolio Manager
    July 23, 2013

    Despite recent events in Detroit, I believe the famously coined term "green shoots" is an apt descriptor for the municipal bond market at this present time. Having been scorched by the wildfire correction that engulfed the fixed-income markets since the end of April, as evidenced by the sharp rise in interest rates (represented in the graph below), there now seems to be indication of a broadening of support for munis from the retail/registered investment advisor community. I have seen inquiries coming from dealers looking for bonds across the spectrum — indeed a welcome sight. The question remains: When does this become an embedded strategy that brings assets back to mutual funds and ETFs?

    U.S. 10-Year Treasury Yield Image

    Source: FactSet as of July 19, 2013.

    Two weeks ago, I observed that opportunistic investors (e.g., non-traditional and hedge fund) stepped into the breach and provided added liquidity for individual bonds that were burdensome to dealers’ balance sheets. As has happened in the past two periods of strained liquidity (2008 and 2010), these investors captured great values which, in my view, were in part represented by some of the deep discounts shown by the intraday marks on the muni ETFs. I view this "intervention" strategy as having been born out of the introduction of Build America Bonds, which I believe brought many more portfolio eyes to focus on the municipal bond market and on its unique qualities as a destination for valuable tactical trades during times of stress. Bernanke's testimony notwithstanding, I am hoping for a period of calm and consolidation so the muni bond fund community can re-establish a credible reinvestment strategy.




    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 in 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 that MUNI NATION® represents the opinions of the author and these opinions may change at any time and from time to time. 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.

    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. 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. Please read the prospectus and summary prospectus carefully before investing.

    Van Eck Securities Corporation, Distributor
    666 Third Avenue
    New York, NY 10017