The biggest exchange-traded fund tracking the $3.7 trillion U.S. municipal market is selling at its deepest discount ever to the value of its assets.
The $3.5 billion iShares S&P National AMT-Free Municipal Bond Fund, known as MUB, touched $100.42 (the net asset value is 105.3). This is the lowest since April 2011 according to, data compiled by Bloomberg. The move reflects yields on benchmark 10-year local debt climbing as high as 2.68 percent , the most since October 2011.
The plunge follows investors pulling $1.86 billion out of U.S. muni mutual funds from Jan. 1 through June 19, Lipper US fund Flows data show.
Despite the fact that few are aware of it, I have been reporting in the EPJ Daily Alert that money supply growth has fallen dramatically since the start of the year. It is behind the current down turn in rates and there is nothing stopping the decline other than massive new money pumping, which will bring on price inflation and even higher interest rates.
Thus, there is only one direction for rates: UP, with muni bonds leading the decline, given that the financial structures of many municipalities are teetering. There is absolutely no good reason to be in municipal bonds now. And muni ETFs will be a worse place to be, given this is relatively HOT money that will try to get out of the exit door all at once.