Home etftrends.com Rise in Muni Bond Issuance in 2024 Throws Spotlight on 2 ETFs

Rise in Muni Bond Issuance in 2024 Throws Spotlight on 2 ETFs

The anticipation of lower interest rates in the new year could bring a flash flood of new municipal bond issuance, according to Bond Buyer. If yields continue to fall and bond prices rise, it might be an opportune time to get muni bond exposure via two ETFs from American Century.

Fixed income investors have been feasting on higher yields as the Federal Reserve has been tightening monetary policy to try to temper inflation. The most recent rate pause could be an early indication that inflation and economic growth could be receding, and thus, the expectation of lower interest rates heading into 2024 has been the prevailing sentiment in the current market. Given the projections of lower rates, local governments could be issuing more bonds amid a presidential election year.

“Municipal bond supply projections for 2024 so far are at a high of $450 billion and a low of $330 billion, with most firms anticipating issuance next year will surpass 2023’s lackluster total,” Bond Buyer reported.

Of course, one of the prime benefits of municipal bonds is its tax-free income exposure. Even while yields are falling or munis aren’t as attractive in terms of yield numbers compared to other riskier bonds, the tax-free component makes them worthy of consideration for a bond portfolio.

“A municipal bond paying 6% to an investor in the 24% tax bracket is actually a better investment than a taxable bond paying interest at 7.9%, due to the federal income tax break,” explained Nancy Ekrem, CPA, in My Edmonds News.

A Pair of Low-Cost, Active ETFs

To take advantage of muni exposure, active ETFs can allow for portfolio adjustments on the fly if market conditions warrant a change. This strategy is inherent in the American Century Diversified Municipal Bond ETF (TAXF), which seeks to provide consistent tax-free income by employing an active, research-driven process that draws from across the muni bond universe and adjusts exposure depending on prevailing market conditions. 

With regard to its low-cost appeal, TAXF features an expense ratio of 29 basis points. This should appease cost-conscious investors who may typically view actively managed funds as too expensive to consider.

Another option, with a low expense ratio of 0.15%, is the Avantis Core Municipal Fixed Income ETF (AVMU). This fund also employs an active management strategy, so investors or advisors can minimize the amount of research necessary given the vast array of opportunities in the municipal bond market.

For more news, information, and strategy, visit the Core Strategies Channel.

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