Rieger Report®: AAA Municipal Bond Yields v. US Treasury & Corporate Bond Yields

AAA Municipal Bond Yields v.

US Treasury & Corporate Bond Yields

Municipal bond ETFs have attracted assets as the asset class rebounds. Concerns over COVID-19 impact on municipalities continues to rise despite “re-openings” across the U.S.

  • Muni yields remain relatively cheap when compared to U.S. Treasury bond yields across the curve. (An old school metric)
  • The IHS Markit AAA Municipal Analytics Curve shows AAA bond yields have become rich relative to flagship or benchmark corporate bonds when viewed from any lens. AA and A municipal bonds are more of a relative value.
  • AAA muni bonds yields v. the SPY 500 Dividend Yield still gives the edge to SPY but the sustainability of those dividends is in question. Keeping a keen eye on this.
  • Fund flow data from ETF Action show that during the last 30 days over $3.39billion has flowed into municipal bond ETFs while investment grade corporate bond ETFs have seen inflows of over $17.9billion.

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 6/15/2020.

RiegerReport_061520_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 6/15/2020 with exception of SPY Dividend yield which is as of 6/12/2020.

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

RiegerReport_061520_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 6/15/2020.

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

RiegerReport_061520_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 6/15/2020. (1)SPDR S&P 500 ETF Yield is Dividend Yield as of 6/12/2020.

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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