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Van Eck launches first US pre-refunded municipal bond ETF

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New York-based asset manager Van Eck Global has launched the Market Vectors Pre-Refunded Municipal Index ETF on NYSE Arca, which it says is the US’s first ETF to focus on the pre-refund

New York-based asset manager Van Eck Global has launched the Market Vectors Pre-Refunded Municipal Index ETF on NYSE Arca, which it says is the US’s first ETF to focus on the pre-refunded segment of the municipal bond market.

PRB seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the Barclays Capital Municipal Pre-Refunded Treasury Escrowed Index. The fund’s total net expenses are 0.24 per cent.

Pre-refunded munis are bonds that have been refinanced by their issuers and remain outstanding in the municipal market.

The principal and interest of the bonds that make up LMPETR, the index underlying the fund, are secured by Treasury obligations backed by the full faith and credit of the US government. Those obligations include US Treasuries as well as state and local government series bonds, which are Treasuries issued specifically for escrow use by municipal issuers. As of 31 December 2008, the index had an average maturity of 4.11 years.

Van Eck says pre-refunded munis backed by Treasuries and SLGs offer a compelling risk-reward profile in today’s difficult economic and financial climate. The bonds have provided high levels of liquidity and their interest rate risk is mitigated by their relatively short maturities.

They also typically provide higher yields than Treasuries on a taxable-equivalent basis, and have historically produced attractive returns.

"We are pleased to lead the way in providing a convenient and cost-effective means of accessing the highest-quality and most liquid segment of the municipal bond market," says Jan van Eck, principal of Van Eck Global (pictured). "Pre-refunded bonds, given their high credit quality, liquidity and relatively low levels of price volatility can truly be called munis for the risk averse. Their attractive taxable-equivalent yields and historical returns add to their appeal. PRB is a unique product that is well-suited to meeting investors’ needs in today’s difficult environment."

PRB is the fourth municipal bond ETF in the Market Vectors lineup, which also includes Market Vectors Short Municipal Index ETF, Market Vectors Intermediate Municipal Index ETF and Market Vectors Long Municipal Index ETF.

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