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

Munis: October Rising 

  • Overall, bonds did their job as anchors when volatility struck the equity markets this past week. As UST yields rebounded a bit towards end of the week, AAA 20 year and longer municipal bond yields have moved from 100% of UST yields to 104%.
  • AAA municipal bond yields saw more overall movement cheaper than either UST and high grade corporate bonds yields.
  • Steepening has begun. The spread between 2 – 30 year AAA muni bonds shifted up 5bps on the week to 146bps. This spread ended September at 138bps.
  • In comparing high quality muni v corporate bonds: excluding the short end of the curve, yields of AA and higher munis are still attractive for most tax bracket market participants.
  • Yield curve shifts in October so far: (data as of 10/12/2018)

10 Year AAA Municipal Bonds  +16bps

10 Year US Treasury Bond   +10bps

10 Year Apple Inc. Bonds  +10bps

RR1014118_Chart1Data as of 10/12/2018.

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 data as of 10/5/2018 and was sourced from S&P Dow Jones Indices www.spdji.com. Current indicated dividend yield is used. Chart is provided for illustrative purposes only.

RR1014118_Chart2

Data as of 10/12/2018.

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 www.treasury.gov. Chart is provided for illustrative purposes only. TEY = Taxable Equivalent Yield at tax rate assumption stated.

RR1014118_Chart3

Data as of 10/12/2018.

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.

RR1014118_Chart4

Data as of 10/12/2018.

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. In September 2018 JR Rieger purchased insured municipal bonds in the 10 year range.
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