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

Municipal Bond Market: March 15, 2020

  • Coronavirus driven market created unprecedented volatility and created chaos of the credit markets as itcontinues to skew risk-off/risk-on asset class results.
  • Short end of the curve for AAA munis ended March 13th relatively cheap v. U.S. Treasury bond yields. The belly of the curve backed up v. the U.S. Treasury yields which also help to make munis more attractive in that maturity range. On the long end of the curve, the traditional (and old school) metric of muni yield ratio to U.S. Treasury ended the week at about 94%.
  • The 10-year IHS Markit AAA Muni Yield at month-end was 0.86%, down 4bps from month-end February but don’t let that fool you, plenty of volatility during the last week.
  • Compared to the 2.26% dividend yield of the SPDR S&P 500 ETF, the IHS Markit Municipal Bond 10 Year AAA yield of 0.86% has shifted back towards being very rich from an income generation perspective relative to the equity market dividend yield. In my view, this is a temporary shift due to equity market downside volatility and should be considered carefully.
  • Investment grade muni ETFs saw 5-day outflows of $227million. However, year-to-date these same funds have seen over $2.5billion in inflows.
  • High yield muni ETFs saw 5-day outflows of $96million. However, year-to-date these funds have seen over $300million inflows.

Source: IHS Markit and ETFAction. Data as 3/13/2020.

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 3/13/2020. 1SPDR S&P 500 ETF Yield is Dividend Yield as of 3/12/2020.


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 3/13/2020 with exception of SPY Dividend yield which is as of 3/12/2020.

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

Analyst Disclosure:

  • At the time of this writing, JR Rieger owns individual municipal bonds and a municipal bond fund.

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