This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Muni-Bond ETF Volatility Could Return

(Story updated with additional context on "QE2" effect and closing prices.)

Content on this page requires a newer version of Adobe Flash Player.

Get Adobe Flash player

(Story updated with S&P commentary)

NEW YORK ( TheStreet) -- Although municipal bond ETFs have stabilized recently, analysts believe the volatility -- spurred by debt crises in the states and a bearish outlook by a noted analyst -- could return.

Over the last few weeks, the municipal bond exchange-traded funds had exhibited a bout of volatility triggered by Fed fiscal policy decisions and grim comments from a leading industry analyst.

On Tuesday, the iShares S&P National AMT-Free Municipal Bond Fund (MUB) ended Tuesday's regular trading session down 0.1% to $98.72, and the SPDR Nuveen Barclays Capital Municipal Bond ETF (TFI) finished flat at $21.43. The iShares fund has tumbled about 4.1% over the past year and about 6.7% over the past three months against a rally in the broader equities market.

Municipal bond funds had outflows of about $2.37 billion during the week ended Jan. 12, according to the Investment Company Institute.

"The whole fixed-income market has been more volatile since the Federal Reserve announced its second round of quantitative easing," Morningstar analyst Tim Strauts said.

Although the Fed's objective was to keep interest rates low and boost investor confidence through a second round of quantitative easing, or QE2, uncertainty surrounding the benefits of the measure led to a rise in yields and decline in prices across the entire fixed income space, including Treasuries. The changes were even more pronounced in municipal bonds, given a combination of factors including their tendency to move in tandem with Treasuries and their low levels of liquidity.

The volatility got an extra boost as Meredith Whitney, the U.S. financial analyst who achieved fame through her accurate prediction of the global credit crisis, said on CBS' 60 Minutes program a few weeks ago that more than 100 American cities could go bankrupt in 2011 as the total debt load of cities and states across the country adds up to about $2 trillion.

More than 100 municipal bond defaults could occur, she predicted.

Still, Strauts said serious losses on municipal bonds in the ETF space don't require cataclysmic pronouncements from an analyst like Whitney.

"The typical municipal bond investor is an individual investor," and can be significantly influenced by headlines in general, he said.
1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
TFI $24.15 -0.08%
MUB $109.94 0.05%
AAPL $118.03 -0.71%
FB $105.41 -0.31%
GOOG $748.15 -0.02%


Chart of I:DJI
DOW 17,813.39 +1.20 0.01%
S&P 500 2,088.87 -0.27 -0.01%
NASDAQ 5,116.1430 +13.3350 0.26%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs