The municipal bond area continues to be a scorching subsector within the debt markets, fueled by an
The municipal bond area continues to be a scorching subsector within the debt markets, fueled by an incoming Biden administration that’s anticipated to hike taxes. ETF traders can now get state-specific publicity to the municipal bond market in California through the Invesco California AMT-Free Municipal Bond ETF (PWZ).
The Invesco California AMT-Free Municipal Bond ETF (Fund) relies on the ICE BofAML California Lengthy-Time period Core Plus Municipal Securities Index (Index). The Fund usually will make investments at the very least 80% of its whole belongings in municipal securities that comprise the Index and that are also exempt from the federal different minimal tax.
The Index consists of US dollar-denominated, funding grade, tax-exempt debt publicly issued by California or any US territory, or their political subdivisions, within the US home market with a time period of at the very least 15 years remaining to last maturity. The Index is adjusted month-to-month and its constituents are capitalization-weighted primarily based on their present quantity excellent. The Fund and the Index are re-balanced and reconstituted month-to-month.
Taking a look at fund holdings as of December 4, nearly all of debt points exceed 15 years. As such, traders are uncovered to extra period threat. But municipal bonds are much less prone to default, particularly with high-powered economies like California.
Turning Up the Quantity on Municipal Bonds
Fastened revenue traders have been fast to pile into the municipal bond area with volumes pushing larger, significantly throughout the summer time. In response to a Visible Capitalist article, “the municipal market is on monitor for a close to file yr when it comes to gross provide, in response to Peter L. Block, managing director of credit score technique at Ramirez & Co. Robust market technicals, comparable to elevated fund flows and November efficiency in sectors, like excessive yield, transportation, and devoted tax are propping up the market, he famous.”
“Gross provide for the primary week of December is estimated at $9.Eight billion, whereas the 30-day seen web provide is destructive $12.6 billion, reflecting $12.Eight billion of introduced provide in opposition to destructive $25.Four billion of maturities and calls, Block mentioned,” the article added. “Up to now, gross provide year-to-date is $434 billion, a rise of 16.8% year-over-year, which incorporates $302 billion of tax-exempt and $133 billion of taxable.”
“New-money issuance must be pushed by pent-up infrastructure wants waylaid by the pandemic, whereas taxable bonds, issued primarily for tax-exempts refundings, ought to decline amidst a comparatively smaller universe of candidates to about $138 billion,” Block wrote.
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