Invesco Touts VRDO ETF
Invesco blogs "The hunt for short-term yield: Variable-rate demand obligations to the rescue?" It says, "VRDOs aren't glamorous, but could be the answer for rising short-term rates and money market upheaval. As short-term interest rates rise, variable-rate securities are seeing increased demand. Among the numerous asset classes available, variable-rate demand obligations (VRDOs) are among the least understood by investors. I believe VRDOs are a compelling short-term investment option for today's market environment -- a period marked by rising short-term rates and money market reforms mandated by the Securities and Exchange Commission." The piece asks, "What are variable-rate demand obligations? VRDOs are high-quality municipal bonds that trade at par value. Comprising roughly 75% of the municipal money market, most VRDOs feature weekly coupon resets that effectively push their duration to zero. Because of these resets, VRDOs, which are based on the SIFMA Municipal Swap Index, are considered short-term paper. In addition, VRDOs have a put feature that allows investors to sell them back to issuers for par value (plus accrued interest) at any time. VRDOs are backed by lines of credit or standby purchase agreements taken out by issuers, which help support the bonds' credit ratings. And because they're municipal bonds, VRDOs are largely exempt from federal taxation, which can boost yields relative to other high-quality, short-term taxable securities, as shown in the table below." Finally, Invesco adds, "The PowerShares VRDO Tax-Free Weekly Portfolio (PVI) tracks the Bloomberg U.S. Municipal AMT-Free Weekly VRDO Index. PVI is made up of investment-grade municipal VRDOs and features weekly coupon resets and a limited duration profile. PVI may be well suited for investors seeking a way to invest in short-duration, high-quality securities, while generating federally tax-exempt income."
