Barclays Launches Municipal Bond ETF

Barclays Global Investors on Monday launched the first municipal bond exchange-traded fund (ETF) that trades on the American Stock Exchange.

The iShares S&P National Municipal Bond Fund will track a liquid, institutional-quality municipal bond index and its annual expense ratio is currently 0.25%, BGI said in a statement, according to Reuters. The fund will track a new Standard & Poor’s index that will include tax-exempt bonds sold by state and local governments that have a minimum rating of “BBB-minus” and a size of at least $50 million.

With the product, investors will have the opportunity to place low-cost bets on the U.S. municipal bond market without actually owning individual bonds directly. Municipal bonds trade in the over-the-counter market rather than an organized exchange and can only be bought through a broker. A typical cost to a retail investor is 2% of a purchase price.

Interest income on the new ETF will be exempt from federal income taxes and could also be exempt from state income taxes. The fund will seek to avoid capital gains distributions.

Matthew Tucker, head of fixed income investment solutions at BGI, said BGI also plans to launch New York and California muni ETFs, according to the news report.