AA Municipal Bond Yields v. US Treasury & Corporate Bond Yields
Inflows to muni funds continue to be strong. Municipal bond ETFs have attracted $2.8billion in assets in the last 30 days, $7billion year-to-date and now total over $56.7billion. The pandemic continues to loom large over the muni market putting entertainment, healthcare and transportation related bond issues at elevated risk. In comparison, fixed rate investment grade corporate bond ETFs have gained over $42billion in assets year-to-date.
- At the highest tax level, the BondWave AA Municipal QCurve show municipal bond yields have become competitive with Apple Inc. and Microsoft bond issue yields. At the next tax level down, corporate bonds have the edge.
- Comparing AA muni bonds yields v. the SPY 500 Dividend Yield still gives the edge to SPY but the sustainability of those dividends remains in question. The dividend yield has fallen from 1.88% at the end of June to 1.77% as of July 30th, 2020. Keeping a keen eye on this trend as unpredictability in dividend cash flow is a negative.
- The effective duration of the largest muni bond ETF, iShares MUB, ended month-end at 6.09 v. the iShares investment grade corporate bond ETF LQD effective duration of 9.71. This should result in less volatility for MUB as interest rates change.
Sources: ETF Action, BondWave (Municipal bond yields), AdvantageData (Corporate 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 7/31/2020 with exception of SPY Dividend yield which is as of 7/30/2020.
Sources: BondWave (Municipal bond yields), AdvantageData (Corporate 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 7/31/2020 with exception of SPY Dividend yield which is as of 7/30/2020.
Sources: BondWave (Municipal bond yields), AdvantageData (Corporate bond yields). Chart is provided for illustrative purposes only. Past performance is not a guarantee of future results. Data as 7/31/2020.
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 7/31/2020. (1) SPDR S&P 500 ETF Yield is Dividend Yield as of 7/30/2020.
Data Resources Used in this Report:
- Municipal bond yields: BondWave
- Corporate bond yields: AdvantageData
- U.S. Treasury bond yields: U.S. Department of Treasury
- iShares ETFs
- Fund flows: ETF Action
- SPDR JNK Duration and SPY dividend yield: SPDR ETFs
- NAV performance: Yahoo! Finance
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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