Largest Muni ETF at Highest Price as Investors Seek Tax Shelter

The largest U.S. exchange-traded fund tracking municipal bonds touched the highest price since it began five years ago as investors speculated that tax rates will increase to help curb the federal deficit.

The iShares S&P National AMT-Free Municipal Bond Fund traded at $114.07 at about 1:30 p.m. today in New York, reaching as high as $114.52. It’s the steepest price since it started in September 2007. The ETF, known as MUB, has $3.5 billion of assets. It has been trading at a premium to its underlying assets since July 16, the longest stretch since March, data compiled by Bloomberg show.

The fund is mirroring the rally in the $3.7 trillion municipal-bond market, which has gained each week since the Nov. 6 re-election of President Barack Obama. He wants top earners to pay higher taxes on ordinary income, capital gains and dividends.

“There’s an assumption underlying the market after the election that tax rates will be somewhat higher and that munis will still have a tax advantage available to them,” said Bart Mosley, co-president of Trident Municipal Research, an analytical company in New York.

Top-rated munis due in 2022 yielded 1.42 percent at 1 p.m. in New York, a record low for a Bloomberg Valuation index that began in January 2009. Yields on benchmark 30-year munis fell to 2.51 percent, also the lowest for the period.

“Investors are looking for ways that they can pick up yield, especially munis, which have the tax advantage on the income,” said Matthew Tucker, head of iShares fixed-income strategy in San Francisco for BlackRock Inc.

The ETF has earned 10.4 percent in the past year.

Investors looking for tax-free income added $1.1 billion to U.S. muni mutual funds in the week through Nov. 21, the most since August, followed by a $545 million inflow this week, Lipper US Fund Flows data show.

To contact the reporter on this story: Michelle Kaske in New York at mkaske@bloomberg.net

To contact the editor responsible for this story: Stephen Merelman at smerelman@bloomberg.net

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