AA Municipal Bond Yields v. US Treasury & Corporate Bond Yields
Inflows to muni ETFs continue to reflect positive investor sentiment for the asset class. Municipal bond ETFs have attracted $2.1billion in assets in the last 30 days, $8.1billion year-to-date and now total over $57.6billion. In comparison, fixed rate investment grade & broad credit corporate bond ETFs have gained over $49.7billion in assets year-to-date.
- AA Municipal bond yields rose during the second half of August creating an opportunity relative to corporate bonds across the curve for the highest tax-bracket investors. Next level down, the opportunity can be seen in the 0 to 7-year maturity range.
- Comparing AA muni bonds yields v. the SPY 500 Dividend Yield still gives the edge to SPY but the uncertainty of those dividends remains in question. The dividend yield has fallen from 1.88% at the end of August at 1.63%. 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 6.12 years v. the iShares investment grade corporate bond ETF LQD effective duration of 9.45 years. This should result in less volatility for MUB as interest rates fluctuate.
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 8/31/2020 with exception of SPY Dividend yield which is as of 8/28/2020.
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 8/31/2020 with exception of SPY Dividend yield which is as of 8/28/2020.
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 8/31/2020.
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 8/31/2020. S&P 500 ETF Dividend Yield as of 8/28/2020.
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 ETF data: 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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