Rieger Report®: Municipal v. Corporate Bonds

AAA Municipal Bond Yields v. US Treasury & Corporate Bond Yields

April reflected market volatility as the IHS Markit Municipal Analytics Curve steepened. High grade munis were outpaced from a total return perspective by high quality corporate bonds as concerns mount about the COVID-19 impact.

  • Muni yields remain relatively cheap when compared to U.S. Treasury bond yields. (An old school metric that has limited relevance in this market)
  • Compared to corporate bonds across the curve, AAA municipal bond yields have moved cheaper for the higher tax brackets as their Taxable Equivalent Yields are higher than the corporate bond yields issued by Apple Inc. and Microsoft Corporation.
  • AAA muni bonds only become more attractive than the SPY dividend yield on the longer end of the curve.
  • Fund flows tell the picture the best: ETF Action data shows that during the last 30 days over $984million has flowed out of municipal bond ETFs while investment grade corporate bond ETFs have seen inflows of over $15.5billion.

Sources: IHS Markit (Municipal bond yields and bond prices & yields for Apple Inc. and Microsoft Corporation bond issues) and ETF Action. Chart is provided for illustrative purposes only. Past performance is not a guarantee of future results. TEY = Taxable Equivalent Yield at stated tax rate. Data as 4/30/2020.

AAA Municipal Bond Yields v. Apple Inc. & Microsoft Corp. Bond Yields

RiegerReport_050120_1

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 4/30/2020 with exception of SPY Dividend yield which is as of 4/29/2020.

RiegerReport_050120_2

Sources: IHS Markit (Municipal bond yields and bond prices & yields for Apple Inc. and Microsoft Corporation bond issues). Chart is provided for illustrative purposes only. Past performance is not a guarantee of future results. TEY = Taxable Equivalent Yield at stated tax rate. Data as 4/30/2020.

RiegerReport_050120_3

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 4/30/2020. 1SPDR S&P 500 ETF Yield is Dividend Yield as of 4/29/2020.

Data Resources Used in this Report:

Notes:

  • Taxable Equivalent Yield = Tax Exempt Yield / (1 – Federal Tax Rate)
  • 2020 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’s fixed income related holdings include investment grade individual municipal bonds, insured municipal bonds, a municipal bond money market fund and a position in the VanEck Vectors High-Yield Municipal Index ETF (HYD)

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