Tisha Guerrero contributed to this article.
Municipal bond exchange traded funds were caught in a wave of fear as investors became worried about state and local defaults. The turbulent waters have quieted some, but are the sharks still circling?
The clearest sign yet that the panic has abated can be found in municipal-bond yields, which move opposite to prices. As prices recovered, yields have come back down. But whether the muni bond market can be considered “healthy” at this point is up for some debate.
Michael Corkery for The Wall Street Journal reports that many questions remain about the stability of the muni bond market and whether it can be trusted. Is the stability the result of technical factors, such as fewer bonds coming to the market? Regardless, investors still eye the market with some caution: government finances are still a big issue and the overall creditworthiness of bond issuers is a lingering concern.
Roger Lowenstein for The New York Times reports that cities across the nation are still in distress, and they may not have even scratched the surface. Is the worst still to come, such as a wave of massive municipal defaults? Will state governments as well as cities be allowed to file for bankruptcy?
Although muni bond ETFs have stabilized in the last month, according to the ETF Analyzer, many of them are still hurting and few are above their long-term trend lines. If the muni space is where you want to be, consider the risks and the fact that this market could continue to see hiccups, and have your exit strategy handy.
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