| Tuesday, July 2, 2019 |
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|---|---|---|---|---|---|---|---|---|
| MANAGING DIRECTOR: Scott Carrithers PORTFOLIO SALES AND SERVICE: Steve Panknin • George Morris • Jeff Goble • Chris Thompson • Sean Doherty Kevin Doyle • Lonnie Harris • Mark Tranckino • Robert Schuyler • Tom Toburen • Josh Kiefer Nicole Burczyk • Kelley Frye • Natalie Regan • Aaron Stoffer • Chuck Honeywell |
| US Treasury Market | |||||||||||
| Date | 1 mo | 3 mo | 6 mo | 1 yr | 2 yr | 3 yr | 5 yr | 7 yr | 10 yr | 20 yr | 30 yr |
| 06/25/19 | 2.11 | 2.12 | 2.10 | 1.93 | 1.71 | 1.67 | 1.73 | 1.86 | 2.00 | 2.31 | 2.53 |
| 06/26/19 | 2.11 | 2.15 | 2.12 | 1.96 | 1.77 | 1.74 | 1.80 | 1.92 | 2.05 | 2.35 | 2.57 |
| 06/27/19 | 2.19 | 2.14 | 2.12 | 1.93 | 1.74 | 1.71 | 1.76 | 1.88 | 2.01 | 2.31 | 2.52 |
| 06/28/19 | 2.18 | 2.12 | 2.09 | 1.92 | 1.75 | 1.71 | 1.76 | 1.87 | 2.00 | 2.31 | 2.52 |
| 07/01/19 | 2.17 | 2.21 | 2.10 | 1.94 | 1.78 | 1.74 | 1.79 | 1.90 | 2.03 | 2.34 | 2.55 |
What Is Your Taxable Equivalent Yield?
With yields shifting lower and the futures market showing a very strong implied probability of a Fed rate cut in July, many portfolio managers are trying to shift investment strategies. Each time there is a big shift in rates, it is important to evaluate your options and determine their value to your institution relative to alternatives.
One easy way to do this comparison is to evaluate municipal bond offerings on a taxable equivalent yield basis utilizing your tax rate. This allows you to compare net yields on tax-free municipals to taxable products (treasuries, agencies, CDs, mbs pools etc.)
Below is a chart of offerings showing taxable equivalent yields in the yellow and blue columns to the right for the 21% (C Corp) and 29.6% (S Corp) federal tax rates.
With yields shifting lower and the futures market showing a very strong implied probability of a Fed rate cut in July, many portfolio managers are trying to shift investment strategies. Each time there is a big shift in rates, it is important to evaluate your options and determine their value to your institution relative to alternatives.
One easy way to do this comparison is to evaluate municipal bond offerings on a taxable equivalent yield basis utilizing your tax rate. This allows you to compare net yields on tax-free municipals to taxable products (treasuries, agencies, CDs, mbs pools etc.)
Below is a chart of offerings showing taxable equivalent yields in the yellow and blue columns to the right for the 21% (C Corp) and 29.6% (S Corp) federal tax rates.
The graph below shows the municipal bond offerings graphed to maturity utilizing taxable equivalent yields in the 21% tax bracket. As you can see, you are able to pick up significant yield above treasuries by extending into municipal bonds. This adds not only significant spread to treasuries, but a nice starting position for bonds to roll- down the yield curve.
This graph looks even better for those in the 29.6% tax bracket.
While the above graphs showed the securities graphed to maturities, these bonds do also have call dates in 2024-2027. Below are the taxable equivalent yields to the call dates for 21% and 29.6% federal tax brackets.
As you can see those in the 21% federal tax bracket do need to be more selective; however, there are still great municipal options out longer for those institutions.
Feel free to call to discuss which options would work best within your investment strategy.
This graph looks even better for those in the 29.6% tax bracket.
While the above graphs showed the securities graphed to maturities, these bonds do also have call dates in 2024-2027. Below are the taxable equivalent yields to the call dates for 21% and 29.6% federal tax brackets.
As you can see those in the 21% federal tax bracket do need to be more selective; however, there are still great municipal options out longer for those institutions.
Feel free to call to discuss which options would work best within your investment strategy.
This information is intended for institutional investors only. The material provided in this document/presentation is for informational purposes only and is intended solely for private use. Past performance is not indicative of future results. This material is not intended as an offer or solicitation for the purchase or sale of any financial instruments.
•Not FDIC Insured •No Bank Guarantee •May Lose Value