Rieger Report®: Municipals v. US Treasury & Corporate Bonds

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

Under the weight of tax driven demand, municipal bonds yields moved lower in April. The BondWave AA QCurve at the 10-year mark ended April at 1.24% representing a 13.5bps shift lower since month-end March while the 10-year UST moved lower by 9bps.

  • Relative value: Generally, AA municipal bond yields at the 37% marginal tax bracket continue to be rich v. US Treasury and high-grade corporate bonds like bonds issued by Apple Inc. and Microsoft. Taxable bond yields have shifted lower helping to close the gap but demand for munis remains strong.
  • Demand: Municipal bond ETFs saw positive April inflows bringing the year-to-date inflow total to over $7.4billion. Assets in municipal bond ETFs now total over $71billion.
  • 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 1.32% (as of 4/29/2021) making municipal bonds with maturities 10 years and longer attractive relative to dividends

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 4/30/2021 with exception of S&P 500 SPY dividend yield as of 4/29/2021. 

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 4/30/2021 with exception of SPY Dividend yield which is as of 4/29/2021.

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 4/30/2021.

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 4/30/2021. *Yield to Maturity and SPY dividend yield as of 4/29/2021.

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 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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