AA Municipal Bond Yields v. US Treasury & Corporate Bond Yields
Municipal bonds take a tumble as yield curves steepen. The BondWave AA QCurve at the 10-year mark ended February at 1.41% representing a 52bps shift cheaper since month-end January.
- Relative value: At the 37% marginal tax bracket, AA municipal bond yields reflect an incremental relative value v. US Treasury and high-grade corporate bonds like bonds issued by Apple Inc. and Microsoft. Municipal bond yields simply moved more making them relatively attractive for high tax bracket individuals.
- Municipal bond ETFs saw good demand up until the last few days of the month when the inbound tidal flow ebbed, and money began to exit. ETF Action data shows the result: Total assets are now over $67.4billion with a 5-day outflow of $180million slightly offsetting strong year-to-date inflow of $3.8billion.
- Keeping an eye on dividends paid by S&P 500 companies. The dividend yield of the SPDR S&P 500 (SPY) ETF shifted lower again ending at 1.49% (as of 2/25/2021) making the 10-year AA muni yield of 1.41% particularly attractive.
Sources: ETF Action, BondWave (Municipal bond yields), AdvantageData (Corporate bond yields) and the U.S. Department of Treasury. Past performance is not a guarantee of future results. Data as 2/26/2021 with exception of S&P 500 SPY dividend yield as of 2/25/2021.
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 of 2/26/2021 with exception of SPY Dividend yield which is as of 2/25/2021.
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. Taxable Equivalent Yields (TEY) are calculated using the stated marginal tax-rate. Data as of 2/26/2021.
Select Asset Class Total Returns & Yields Year-to-Date
Sources: iShares by BlackRock and SPDRs. 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 2/26/2021. *S&P 500 ETF Dividend Yield as of 2/25/2021.
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 SPY dividend yield: SPDR ETFs
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 various investment grade & high yield municipal bonds, insured municipal bonds, municipal bond money market funds and a position in the VanEck Vectors High-Yield Municipal Index ETF (HYD).
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