Muni Bond ETFs Jump to New Highs on Cliff Fears

On fears politicians will not reach a compromise that helps the U.S. economy dodge the dreaded fiscal cliff, some municipal bonds ETFs surged to all-time highs on Friday. On volume that was nearly 50 percent above the daily average with 30 minutes left in the session, the iShares S&P National AMT-Free Municipal Bond Fund (NYSE:MUB) was higher by 0.2 percent.

MUB, the largest municipal bond ETF with $3.44 billion in assets under management, touched a new all-time high at $114.31 earlier in today's session. That ETF, with a 30-day SEC yield of 1.5 percent, is far from alone in the new all-time high club.

Investors have also shown a willingness to bid up high-yield municipal bond ETFs. The Market Vectors High-Yield Municipal Index ETF (NYSE:HYD) today traded to its highest levels since its February 2009 debut. HYD, which has over $1 billion in AUM, features a 30-day SEC yield of 4.26 percent. The Market Vectors fund has jumped 15.7 percent this year compared to a 5.6 percent gain for MUB.

The $183.7 million SPDR Nuveen S&P High Yield Municipal Bond ETF (NYSE:HYMB) also touched a new all-time high today on volume that is more than 25 percent above the daily average. HYMB has a 30-day SEC yield of 4.11 percent and has delivered returns of 14.4 percent year-to-date.

The fiscal cliff would likely increase the allure of the tax advantages offered by municipal bond funds. Municipal bonds are attractive because these bonds are usually exempt from federal taxes and many are not subject to state and local taxes, either.

And it has been fears regarding the fiscal cliff that has led to inflows for municipal bond ETFs. At the start of this week, HYD had $994 million in AUM while the iShares S&P California AMT-Free Municipal Bond Fund (NYSE:CMF) had above $275 million in assets. The iShares S&P California AMT-Free Municipal Bond Fund's AUM total was nearly $282.2 million at the start of trading today. CMF can also be found flirting with its all-time highs.

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