Rieger Report®: Muni Bonds v. U.S. Treasury & Corporate Bonds

Municipal Bond Market: January 2020

  • Investment grade munis benefited from the risk-off Coronavirus driven market dynamics despite steady supply of new issues.
  • The 10-year IHS Markit AAA Muni Yield at month-end was 1.15% down 36bps pretty much in line with he 10-year U.S. Treasury.
  • Compared to the 1.71% dividend yield of the SPDR S&P 500 ETF, the IHS Markit Municipal Bond 10 Year AAA yield of 1.1.5% remain attractive relative for the highest tax bracket range investors only and that is very close. This should further fuel the dividend v. interest rate debate as we get deeper into 2020.
  • 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 90%, up about 4% during the month, reflecting that munis inched a bit cheaper v. the U.S. Treasury yields during January.
  • Pension obligation shortfall impact: (Key states to watch: Illinois & New Jersey)

Conclusion: the marketplace continues to ignore pension deficit risk in the near term.

Source: IHS Markit, S&P Dow Jones Indices, LLC. Data as 1/31/2020.

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

RiegerReport_020320_1

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 1/31/2020. (1) SPDR S&P 500 ETF Yield is Dividend Yield as of 1/30/2020.

RiegerReport_020320_2

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 1/31/2020 with exception of SPY Dividend yield which is as of 1/30/2020.

Data Resources Used in this Report:

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.

Click here for a print friendly copy of this report.

Rieger Report® is registered in the U.S. Patent and Trademark Office.
Copyright © 2020 Rieger Report LLC. All rights reserved. Redistribution in whole or in part is prohibited without written permission of the Rieger Report LLC. All information provided by the Rieger Report LLC is for informational purposes only, impersonal, and not tailored to the needs of any person, entity or group or persons. It should not be considered financial advice. The Rieger Report LLC receives compensation in connection with licensing its research, advertising on its website, speaking and consulting services.
Past performance of any investment product or index referenced in the Rieger Report is not an indication of or guarantee of future results.
The Rieger Report LLC is not an investment advisor, and the Rieger Report LLC makes no representation regarding the advisability of investing in any such investment fund or other investment vehicle. A decision to invest in any such investment fund or other investment vehicle should not be made in reliance on any statements set forth in this document. Prospective investors are advised to make an investment in any such fund or other vehicle only after carefully considering the risks associated with investing in such funds, as detailed in an offering memorandum or similar document that is prepared by or on behalf of the issuer of the investment fund or other investment product or vehicle. A financial advisor should be contacted to determine what may be best for your individual needs. The Rieger Report LLC is not a financial or tax advisor. A tax advisor should be consulted to evaluate the impact of any tax-exempt securities on portfolios and the tax consequences of making any particular investment decision. No legal relationship is created between you and Rieger Report LLC.
The Rieger Report LLC does not act as a fiduciary or investment advisor. While the Rieger Report LLC has obtained information from sources it believes to be reliable, the Rieger Report LLC does not perform any audit or undertake verification of any information it receives.
The Rieger Report Rankings are opinions of relative ranking among the peer group analyzed as of the date expressed and not statements of facts. Rieger Report model portfolios are intended for illustration only. Any opinion or analysis decisions are not to be construed as recommendations to purchase, hold or sell any securities or to make any investment decisions, and do not address the suitability of any security. The Rieger Report LLC does not assume any obligation to update the content in this publication in any form or format.
Your use of any information from this document or presentation is at your own risk and without recourse against Rieger Report LLC, its members, managers, or employees. To the maximum extent permitted by law, Rieger Report LLC disclaims any and all liability in the event any information, commentary, analysis, and/or opinions prove to be inaccurate, incomplete or unreliable, or result in any investment or other losses.