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Municipal Bond Market: November Mid-Month

• High grade tax-exempt munis have held onto their value as the IHS Markit Municipal Bond AAA yields on the short end show relative value strengthening v. corporate bonds. On the longer end, 20 plus years, some munis are becoming more attractive v. corporate bonds and only for the higher tax brackets. The belly of the AAA muni curve, the 7 – 12 year range, continues to appear rich.
• Compared to the 1.77% dividend yield of the SPDR S&P 500 ETF, the IHS Markit Municipal Bond 10 Year AAA yield at mid-month was 1.56%. Ten year AAA munis remain attractive relative to the SPDR Dividend Yield for all but the lowest tax brackets.
• The old school muni/U.S. Treasury yield ratio on the long end of the AAA muni curve was about 105% of U.S. Treasury yields in December 2018, that ratio ended mid-November at 94% reflecting that munis inched richer v. the U.S. Treasury yields in the first weeks of November.
• Pension obligation shortfall impact: (Key states to watch: Illinois & New Jersey)
  • The spread between the S&P Municipal Bond Illinois G.O. Index and the S&P Municipal Bond State G.O. Index yield has tightened by 3bps to 83bps continuing its narrowing trend v. the year end spread of 105bps.
  • New Jersey G.O.s have begun to slip v. the overall index moving 2bps cheaper to a spread of 12bps.

Source: S&P Dow Jones Indices, LLC. Data as 11/15/2019.

Select Asset Class Total Returns & Yields Year-to-Date

Sources: iShares by BlackRock, SPDRs and Yahoo.com. Table is provided for illustrative purposes only. Past performance is not a guarantee of future results. TEY = Taxable Equivalent Yield calculated at assumed tax rate indicated. Data as 11/15/2019. (1) SPDR S&P 500 ETF Yield is Dividend Yield.

Sources: IHS Markit (Municipal bond yields), SPDR and the U.S. Department of Treasury. Chart is provided for illustrative purposes only. Past performance is not a guarantee of future results. Data as 11/15/2019.

Sources: IHS Markit (Municipal bond yields) and Exchange Data International (Apple Inc. bond yields.) Chart is provided for illustrative purposes only. Past performance is not a guarantee of future results. TEY = Taxable Equivalent Yield calculated at assumed tax rates indicated. Data as of 11/15/2019.

Data Resources Used in this Report:

• Municipal bond yields: IHS Markit www.ihsmarkit.com
• Apple Inc. bond yields: Exchange Data International Ltd. (EDI) www.exchange-data.com
• U.S. Treasury bond yields: U.S. Department of Treasury https://www.treasury.gov
• Index data: S&P Dow Jones Indices, LLC. www.spindices.com
• Yahoo Finance www.yahoo.com

Notes:

• Taxable Equivalent Yield = Tax Exempt Yield / (1 – Federal Tax Rate)
• 2019 tax brackets, however not all tax brackets are represented herein
• End of day yields are used

Analyst Disclosure:

• At the time of this writing, JR Rieger owns individual municipal bonds and a municipal bond fund. JR does not own bonds issued by Apple Inc.

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