MUB Discount at Two-Month Low as Munis Rally Following Bernanke

The largest exchange-traded fund tracking the $3.7 trillion municipal market is trading at its smallest discount in two months as local-government debt rallies.

The $3 billion iShares National AMT-Free Muni Bond ETF, known as MUB, sold at 0.22 percent less than the value of its holdings as of yesterday, the smallest discount to its underlying assets since July, data compiled by Bloomberg show.

After trading at a discount for a record 80 straight days, the shift signals the fund is closer to selling at a premium, said Bart Mosley, co-president of Trident Municipal Research in New York.

Investors are returning to MUB and other funds as they again view municipal securities “as a strategic asset class that is relatively safe from a credit perspective and provides, at this point, very attractive yields compared with other fixed income,” Mosley said.

The municipal market is rebounding after yields set a two-year high this month.

The interest rate on 10-year benchmark munis fell to 2.88 percent at noon in New York, the lowest since Aug. 14, Bloomberg data show. Yields dropped after the Federal Reserve yesterday unexpectedly said it wouldn’t shrink its monthly bond-buying program.

The fund’s price fell to $103.65 at 12:25 p.m. in New York after climbing to $103.83 yesterday, the highest since July 31.

The MUB, created in 2007, is an exchange-traded fund. While ETFs are similar to mutual funds that track an index of equities, bonds or commodities, they can be bought and sold throughout the trading day and their prices may rise or fall more than the value of the assets they hold.

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