Those are points to consider, but history is on HYD’s side. California, a state with ballooning public pension obligations, is the fund’s largest allocation at 13.7%. For example, Illinois, one of the more financially challenged states, accounts for 11.7% of the ETF’s roster. Low default rates are particularly relevant in the case of HYD, not just because the fund holds high-yield debt, but also because of some of its state exposures. Of the two muni defaults in 2020, one was rated and the other was “’by a Moody’s rated entity albeit on an unrated instrument.’” “Likewise when compared to the five-year CDR of 6.89% for global corporates over the same time period. “The five-year all-rated cumulative default rate ( CDR) of municipal bonds throughout the study period (1970-2020) was unchanged at 0.08% and still remains very low,” adds Cohick. On that note, a recent study by Moody’s Investors Service notes the long-term default for munis is rather low. Municpal bonds, high-yield and otherwise, are seen as long-term investments, ideal for conservative investors and retirees. While there were municipal ratings downgrades during the year, global corporates’ ratings’ downgrades were more frequent.” “(Indeed, during the period of significant market stress during 2020 resulting from Covid, there were only two municipal defaults and neither were virus related.) Second, muni bonds continue to be highly rated compared to corporates. “While they may have become more common over the last 10 years, municipal defaults and bankruptcies still remain rare overall,” says Michael Cohick, VanEck senior ETF product manager. Fortunately, muni defaults remain rare and that’s a plus for investors considering HYD. Of course, the trade-off for more yield on any bond usually is elevated default risk, among other concerns. That’s a lot better than the 0.75% on the widely followed S&P National AMT-Free Municipal Bond Index. After all, the $4 billion HYD sports a 30-day SEC yield of 2.20%. That may sound like an invitation to embrace high-yield municipal bonds and exchange traded funds like the VanEck Vectors High Yield Muni ETF ( HYD A-).
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |