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Morningstar, Inc. Commentaries

Year in Review: Municipal CEFs

Jan 3, 2014
Click here to access Year in Review: Municipal CEFs

Normally regarded as a sleepy--and "safe"--asset class, municipal bonds were hammered in 2013. In fact, munis were hit twofold: first by rising interest rates, and then by credit concerns. After a spectacular run in 2012, many muni investors were likely disappointed. For example, the largest muni exchange-traded fund,  iShares National AMT-Free Municipal Bond (MUB), which tracks the S&P National AMT-Free Municipal Bond Index, lost 3.0% for the year after returning 5.2% in 2012 and 13.0% in 2011. But this was still relatively tame compared with the carnage among muni closed-end funds. These CEFs typically use leverage, focus on the longer end of the yield curve, and go after securities with greater credit risk--all of which amplified the volatile movements in the broad muni market. 

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