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Strong Finish for Muni Markets in 2016


TOM BUTCHER: Jim, how has the municipal bond market performed so far this year?


JIM COLBY: The municipal market has performed exceedingly well, given that expectations were for perhaps modest gains this year. We started 2016 with uncertainty about what the Federal Reserve was going to do, and uncertainty about the economy, which made it impossible to predict exactly what performance was going to be this year. On balance, I would say that we have had good performance year to date.


BUTCHER: What has muni investment flows been like, especially in light of recent money market fund reforms?


COLBY: Municipal flows can be broken down in two ways: there is supply and there is demand. Demand flows have been extraordinary. For the better part of the past 52 weeks, we have had inflows into the municipal market. In terms of the flows of new issues into the marketplace, however, there has been an imbalance: not as much supply as there has been demand. This dynamic has led to strong performance in 2016. Of late, however, we have seen a reversal of this trend, with slight outflows in the municipal space and a tidal wave of new issues coming into the market. That might sound a little daunting, but it has been a beneficial event for the municipal marketplace because, suddenly, we now have plenty of supply to meet demand, which I believe will resurface in this fourth quarter.


BUTCHER: Has recent volatility altered your expectations for the rest of the year?


COLBY: My expectations are still fundamentally positive. I think that the sudden surge of new supply into the market has reset yields higher. From an investor's standpoint, this represents an opportunity to reenter the marketplace at more attractive levels than have been available over the last two or three months, or even in the third quarter. Looking at the fourth quarter, I do not see anything that is going to change the opportunity set in municipals. The ratios of municipal yields compared to U.S. Treasury yields, the basic analysis of what represents value in the municipal marketplace, are now pushing upwards of 98%-99%, and in some cases 100%.1 When municipal yields are yielding the same as U.S. Treasuries that indicates great value. In the fourth quarter, this value will underpin an opportunity that people will recognize again. I believe that we will have a pretty good finish to the fourth quarter, whether or not the U.S. Federal Reserve raises interest rates.


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IMPORTANT DISCLOSURE


1 As of 10/31/2016. Source: Thomson Reuters and Bank of America Merrill Lynch.

The views and opinions expressed are those of the speaker and are current as of the video’s posting date. Video commentaries are general in nature and should not be construed as investment advice. Opinions are subject to change with market conditions. All performance information is historical and is not a guarantee of future results. For more information about VanEck Funds, VanEck Vectors ETFs or fund performance, visit vaneck.com. Any discussion of specific securities mentioned in the video commentaries is neither an offer to sell nor a solicitation to buy these securities. Fund holdings will vary. All indices mentioned are measures of common market sectors and performance. It is not possible to invest directly in an index. Information on holdings, performance and indices can be found at vaneck.com.


Please note that Van Eck Securities Corporation offers investment products that invest in the asset class(es) included in this video. 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. Municipal bonds may be less liquid than taxable bonds. There is no guarantee that the Funds’ income will be exempt from federal or state income taxes, and changes in those tax rates or in alternative minimum tax rates or in the tax treatment of municipal bonds may make them less attractive as investments and cause them to lose value. Gains, if any, are subject to gains tax.


Investing involves substantial risk and high volatility, including possible loss of principal. An investor should carefully consider the investment objective, risks, charges and expenses of the Fund before investing. Bonds and bond funds will decrease in value as interest rates rise. 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.


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