Schwab muni ETF faces record outflow amid bond rout

The Schwab Municipal Bond ETF, ticker SCMB, just had one of the worst days in its history. On September 14-15, the fund saw roughly $360 million walk out the door in a single redemption event, part of a broader $561 million weekly net outflow from municipal ETFs that signals something deeper than a bad news cycle. The culprit is straightforward: Treasury yields have been climbing relentlessly, and municipal bonds are getting dragged along for the ride. The 10-year Treasury yield has surged from 3.9% in late February to 5.0% by mid-September, a jump of about 110 basis points that has turned muni holdings from safe harbor into dead weight for many portfolios. The math behind the muni meltdown SCMB, which charges a razor-thin 0.03% expense ratio, had built itself into a formidable municipal bond vehicle with assets under management in the range of $3.55 billion to $4.12 billion. The broad municipal market has posted negative year-to-date returns of approximately 1.7%. Municipal bond issuance has been running hot, with nearly $430 billion issued year-to-date through early September, the highest figure for that period on record according to Bloomberg data. More bonds hitting the market ...