Municipal Bond Market: January Mid-Month
- 2019 saw municipal bond ETFs grow to 58 with a total AUM to $48.69billion.
- Munis have started 2020 rich relative to U.S. Treasuries as demand continues to outstrip supply.
- Compared to the 1.72% dividend yield of the SPDR S&P 500 ETF, the IHS Markit Municipal Bond 10 Year AAA yield at mid-month was 1.33%. From a dividend comparison perspective, 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 94% of U.S. Treasury yields in December 2019, that ratio for longer dated munis is currently about 87% reflecting that munis inched richer v. the U.S. Treasury yields.
- Pension obligation shortfall impact: (Key states to watch: Illinois & New Jersey)
Conclusion: The marketplace is not considering pension risk as problematic in the near term.
Source: IHS Markit, S&P Dow Jones Indices, LLC. Data as 1/15/2020.
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 1/15/2020. 1SPDR 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 1/15/2020.
Data Resources Used in this Report:
- 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
- At the time of this writing, JR Rieger owns individual municipal bonds and a municipal bond fund.
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