Municipal Bonds vs. U.S. Treasury & Corporate Bonds

Munis: Key Takeaways: Market Absorbs New Supply

  • Short end still rich (0 – 3 year range) relative to other options available (including dividends, UST and corporate bonds)
  • Long end did see pressure to move cheaper as new issue supply increased but stayed in line with UST yields. AA and A rated long end saw more volatility.
  • Muni v corporate bonds: excluding the short end of the curve, yields of AA and higher munis are still attractive for higher tax bracket market participants
  • I.G. municipal bond ETFs are good options for beta exposure: iShares MUB and Vanguard VTEB are two good examples
  • iShares National Municipal Bond (MUB): SEC 30 Day Yield 2.46%1 (Taxable Equivalent Yield1= 3.9%)
  • Vanguard National Municipal (VTEB): SEC 30 Day Yield: 2.52%1 (Taxable Equivalent YIeld1= 4.0%)
  • Vanguard Intermediate Term Corporate (VCIT): SEC 30 Day Yield: 3.99%1
  • iShares iBoxx Investment Grade Corporate (LQD): SEC 30 Day Yield: 4.07%1
  • High yield muni bond ETFs still appear attractive: VanEck Vectors HYD and SPDR HYMB are two good examples
  • VanEck Vectors High Yield Municipal (HYD): SEC 30 Day Yield 4.01%2 (Taxable Equivalent YIeld1 = 6.36%)
  • SPDR Nuveen S&P High Yield Municipal (HYMB): SEC 30 Day Yield 3.85%1 (Taxable Equivalent YIeld1 = 6.11%)
  1. Taxable Equivalent Yield assumes a 37% federal tax rate. Data as of 9/6/2018.
  2. Data as of 9/7/2018.

RR020718_Chart1Data as of 9/7/2018 

Sources: Municipal bond yields sourced from The Bond Buyer www.bondbuyer.com Data Workstation and MBIS www.mbis.com , U.S. Treasury bond yields sourced from the U.S. Department of the Treasury www.treasury.gov and the S&P 500 Dividend Yield was sourced from S&P Dow Jones Indices www.spdji.com . Current indicated dividend yield is used. Chart is provided for illustrative purposes only.

RR020718_Chart2

Data as of 9/7/2018

Sources: Municipal bond yields sourced from the Bond Buyer Data Workstation www.bondbuyer.com and MBIS www.mbis.com Municipal Yield Curves, U.S. Treasury bond yields sourced from the U.S. Department of the Treasury http://www.treasury.gov. Chart is provided for illustrative purposes only. TEY = Taxable Equivalent Yield at tax rate assumption stated.

RR020718_Chart3

Data as of 9/7/2018

Sources: Apple Inc. bond yields provided by SQX https://sqx.com/. Municipal bond yields sourced from the Bond Buyer Data Workstation www.bondbuyer.com and MBIS www.mbis.com. Chart is provided for illustrative purposes only. TEY = Taxable Equivalent Yield at tax rate assumption stated.

RR020718_Chart4

Data as of 9/7/2018

Sources: Apple Inc. bond yields provided by SQX https://sqx.com/ . Municipal bond yields sourced from the Bond Buyer Data Workstation www.bondbuyer.com and MBIS www.mbis.com.   U.S. Treasury bond yields sourced from U.S. Department of the Treasury www.treasury.gov. Chart is provided for illustrative purposes only. TEY = Taxable Equivalent Yield at tax rate assumption stated.

Data Resources Used in this Report:

Notes:

  • Taxable Equivalent Yield = Tax Exempt Yield / (1 – Federal Tax Rate)
  • 2018 tax brackets, however not all tax brackets are represented herein
  • End of day yields are used

Analyst Disclosure:

  • JR Rieger and or the Rieger Report LLC has not received compensation either directly or indirectly from the sponsor(s) of the ETF(s) included in this report.
  • At the time of this writing, JR Rieger does not own the ETF(s) cited in this report, nor bonds issued by Apple Inc.
  • Between July 1st and July 13th 2018, JR Rieger purchased insured municipal bonds and AA and higher rated municipal bonds in the 8 – 14 year maturity range.
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