Barclays Launches First Munibond ETF

September 10, 2007

SAN DIEGO (ETFguide.com) - Barclays Global Investors (BGI) has won the race to issue the first municipal bond ETF.

Today the San Francisco, CA-based asset manager launched the iShares S&P National Municipal Bond Fund (Amex: MUB) on the American Stock Exchange. The move will expand the investment firm's lineup of fixed income ETFs to 17.

The fund's annual expense ratio is 0.25 percent.

The iShares ETF contains municipal bonds from a diverse group of U.S. state and local governments. Bonds from issuers in U.S. territories, such as Puerto Rico, U.S. Virgin Islands and Guam are also included. Each bond must be denominated in U.S. dollars and have a minimum par amount outstanding of $50 million.

One of the big draws of municipal bonds is their tax favored status. The interest income from munis is exempt from U.S. federal income taxes and the federal alternative minimum tax. Also, any portion of the income derived from munibonds in your home state is treated as state tax free.

Even though the interest paid on municipal bonds is tax-exempt, capital gains or losses from the sale of such bonds or bond funds still applies.

One of the advantages of bond ETFs over bond mutual funds is intra-day pricing, transparency and rock bottom expense ratios.

The category average expense ratio for all bond ETFs during the third quarter was a slim 0.19 percent.

“The Amex is proud to be partnering with Barclays to launch the first ETF to track the U.S. municipal bond sector,” said Scott Ebner, Senior Vice President, Amex ETF Marketplace. “This new iShares product accommodates a growing demand from investors who are seeking exposure to a wider array of fixed income ETF offerings.”