Vanguard Cancels Three Muni Bond ETFs, Cites "High Level Of Volatility"

Tyler Durden's picture

Who would have thought that all it takes for a proposed ETF to be canceled is a complete loss of faith in the underlying. Today, Vanguard has announced it has canceled plans for a short, intermediate and long-term muni ETF. "We believe that this delay is prudent given the high level of volatility in the municipal bond market, which began in November 2010 and continues today," said John Woerth, spokesman for the Valley Forge, Pennsylvania-based firm. "This volatility could impede the funds' abilities to tightly track their respective benchmarks, deliver on the funds' objectives, and meet shareholders' expectations." Well, what if shareholders expectations were to short the ETFs? It would certainly meet that particular set of expectations.

And with the freefall in various muni bonds continuing, this will likely be the end of ETF providers attempting to monetize on this latest now former bubble.

More from Reuters:

Municipal bond prices have fallen since November as the possibility of a big tax rise for rich investors who favor tax-exempt debt disappeared. Mutual funds have reported eight straight weeks of withdrawals from munis, putting added pressure on the market.

Investors have complained that some muni ETFs are not properly tracking their underlying market indexes.

Vanguard oversees about $135 billion of exchange-traded funds amid its total assets of some $1.6 trillion.

In the meantime the sea of red continues for California and New Jersey.

h/t papa swamp


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HelluvaEngineer's picture

Awww - guess they can't create a 2x inverse and short it to zero.

sodbuster's picture

>Well, what if shareholders expectations were to short the ETFs? It would certainly meet that particular set of expectations.<

That is what Vanguard had in mind when they cancelled. It doesn't fit the Fed philosophy that everything MUST go up!

aerojet's picture

That may not be true.  Vanguard is a company that puts ethics above profits--they try to look out for their customers.  I realize what I am saying is probably making some people laugh, but I have always gotten the sense that Vanguard has worked in my best interest even though money was still lost in all the craziness that has gone on the past few years.  Example:  When the Treasury MM Fund went tits up, Vanguard put everyone into the Admiral Treasury MM Fund, they didn't just break the  buck and fuck everyone. 

I like to think that not everyone in the financial industry is a greedy fuckwad.  Maybe I'm wrong, dunno.  All those novel inverse ETFs and levered ETFs are products that are designed to leave small investors broke, btw.



LeBalance's picture

Captian Obvious sez: "That's a vote of non-confidence."

And it is NOT contained.

Treasuries next.

Apostate's picture

Bernanke has no idea how bad it is out there!

He has to open the discount window for the states! He knows nothing! Nothing!

Pegasus Muse's picture

Good article:


Ellen Brown  --  January 11, 2011

The Federal Reserve was set up by bankers for bankers, and it has served them well. Out of the blue, it came up with $12.3 trillion in nearly interest-free credit to bail the banks out of a credit crunch they created. That same credit crisis has plunged state and local governments into insolvency, but the Fed has now delivered its ultimatum: there will be no “quantitative easing” for municipal governments.

Apostate's picture

Liars tend to lie. Ben said that about the Federal debt too, but he eventually had to cave.

He always talks tough in the opening rounds to firm up "market confidence," but caves when the  politicos show him their puppy dog eyes.

What, how do you think this would play in Congress? Ben's willing to bail out failing European governments, but not American ones? He's just a man with a magical money machine in a mediocre suit.

SheepDog-One's picture

Theres absolutely no benefit to the FED to bail out municialities. So they wont.

Buck Johnson's picture

Actually there is a benefit to them, and that is systemic contagion.  If the municipal's go belly up it would put in serious danger US Treasury bonds.  You see the rest of the world thinks or knows that the US has implicitly said that they will bailout any debt issued by their banks/institutions.  That was the only way they could get investors to by muni's.  If not and the US won't even bailout their own state issued bonds to protect the bond holders, then who can truly trust the ultimate bond issuance which is US treasuries.  That was said to be explicitly backed, but so what.  If you can pick and choose who or what you will bailout, you can easily pick and choose if you want who will get their money first with Treasuries.


I think the Fed won't bail them out, but in the end will have two choices hyperinflation from printing the money to the states that will hit the streets or wide scale default of all bonds in the market and the loss of credit of the US.  It's not a good choice to have, but if I was the one making the pick I would default and not bail the states out and then go to my creditors to make a major deal.  It won't be good for us, but it saves us from hyperinflation and the total implosion of the US economy along with the dollar.

Jason T's picture

more like high level of "no demand" for junk that will defalut because Ben said no bailout for muni's (another lie?) that pays stupidly low interest given risk of default.

goldmiddelfinger's picture

They could consider contracting for Obama's Tucson "medicine man"

Robot Traders Mom's picture

CA st G.O.'s @ 6% inside 30 yrs...crazy. Hell, you can even get AA CA schools in '20 @ 5%

spartan117's picture

CMF getting hammered.  California is toast.

Victor Berry's picture

Way to go Bernanke, Geithner, et al!  In your infinite wisdom, you rescued AIG to protect the CDS insurance for the big banks, but you let AMBAC (American Municipal Bond Assurance Corp) go bankrupt on 08 Nov 2010 which screwed cities, counties, and states as municipal bonds have been in free fall ever since.

You've got a sick sense of humor when it comes to picking winners and losers in the free market [sic].

Apostate's picture

If you're the Federal goverrnment, it puts you in a great position to exercise control over the states.

Now, Los Federales can decide which states live or die. They can fall in line or be obliterated.

This is, of course, a risky negotiating tactic, and some states have retaliated by proposing these gold standard bills as part of the initial negotiations.

Bailing out AMBAC would've generated even more hilariously large liabilities for the powers that be. Even they're not quite that insane. 

ZEITGEIST's picture

you are right on the money......well said..

oogs66's picture

Today, muni's are getting pounded.  MUB down 1% while tlt is up almost 1%.  BAB's doing better than MUB but still basically unch'd on a spread basis.  MCDX is 5 wider and feels like it could capitulate again soon.  Meanwhile IG and HY CDS indices are a touch wider even with Europe tighter on the day.

Mercury's picture

Don't have the data handy but I'd love to see recent short interest figures on these ETFs.

I am a Man I am Forty's picture

These ETF muni bond funds are for suckers.  There was plenty of time to get the hell out of CA and NJ (and IL for that matter) muni bonds and make money doing it.  I got muni bonds all over the country and they have barely moved down.  Will probably rotate back in once they get attractive in selective locations.

bonddude's picture

States won't help local Redev Agencies anymore= 1,000s of smaller defaults.

Yeah states won't default but cities and other agencies sure will. The can was

kicked down the road just like commercial, which is also not going to fund/


WilliamShatner's picture

I had a good chunk of money in one of Vanguard's tax free muni bond funds, VMLTX, but sold out of it last year and put the $$ into gold and silver.

Good move so far.

squexx's picture

Why the fuck don't they POMO muni bonds? They're doing it to every fucking thing else!

hugovanderbubble's picture

This highlight i dont understand why is not more visited and commented...

The prelude of massive defaults in Cities and States.......

Back to Gold/Silver Standard Now¡