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Thursday, July 19, 2018 |
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MANAGING DIRECTOR: |
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US Treasury Market |
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| Date | 1 mo | 3 mo | 6 mo | 1 yr | 2 yr | 3 yr | 5 yr | 7 yr | 10 yr | 20 yr | 30 yr |
| 7/12/18 | 1.89 | 1.98 | 2.17 | 2.39 | 2.60 | 2.68 | 2.75 | 2.83 | 2.85 | 2.89 | 2.95 |
| 7/13/18 | 1.87 | 1.98 | 2.16 | 2.37 | 2.59 | 2.66 | 2.73 | 2.80 | 2.83 | 2.87 | 2.94 |
| 7/16/18 | 1.90 | 2.01 | 2.19 | 2.39 | 2.59 | 2.67 | 2.75 | 2.82 | 2.85 | 2.90 | 2.96 |
| 7/17/18 | 1.93 | 2.02 | 2.19 | 2.39 | 2.62 | 2.69 | 2.76 | 2.83 | 2.86 | 2.91 | 2.97 |
| 7/18/18 | 1.90 | 2.00 | 2.17 | 2.43 | 2.60 | 2.69 | 2.77 | 2.84 | 2.88 | 2.93 | 2.99 |
Source: U.S. Department of the Treasury, as of 07/18/2018
Where to Find Value in Municipals
Many investors are struggling to determine where municipals will add value to their portfolio. While the yield curve is very flat, the municipal yield curves are still fairly steep. This allows for bonds to roll down the curve nicely, but also provides value for investors in all tax brackets on the long end of the yield curve.
The Municipal BQ (AA+ AA AA-) curve is graphed in blue below. As you can see on the front end of the yield curve, municipals are offered at a negative spread to treasuries. Thus investors must calculate if these short maturity municipals provide value above treasuries to them at their given tax bracket. (We have done this math for you in Appendix 1 below).
Source: Bloomberg rates as of 7/18/2018
In addition to the long end of the municipal market, there is also value in taxable for municipals for investors. Taxable municipals offer spread to treasuries across all maturities. The longer maturities again offer the greatest spread to treasuries.
Source: Bloomberg rates as of 7/18/2018
Consider the below taxable offering, graphed above on the red square. This offers ~50bps spread to treasuries. This is located on a steep portion of the municipal curve, with a 10yr final maturity.
Many investors are struggling to determine where municipals will add value to their portfolio. While the yield curve is very flat, the municipal yield curves are still fairly steep. This allows for bonds to roll down the curve nicely, but also provides value for investors in all tax brackets on the long end of the yield curve.
The Municipal BQ (AA+ AA AA-) curve is graphed in blue below. As you can see on the front end of the yield curve, municipals are offered at a negative spread to treasuries. Thus investors must calculate if these short maturity municipals provide value above treasuries to them at their given tax bracket. (We have done this math for you in Appendix 1 below).
Source: Bloomberg rates as of 7/18/2018
In addition to the long end of the municipal market, there is also value in taxable for municipals for investors. Taxable municipals offer spread to treasuries across all maturities. The longer maturities again offer the greatest spread to treasuries.
Source: Bloomberg rates as of 7/18/2018
Consider the below taxable offering, graphed above on the red square. This offers ~50bps spread to treasuries. This is located on a steep portion of the municipal curve, with a 10yr final maturity.
| Mdy/SP | Description | State | Amount | Coupon | Maturity | Settle | Price | YTM | Type |
| Aa2 / AA+ | SANTA MONICA CCD-B | CA | 750,000 | 3.472% | 8/1/2028 | 7/20/2018 | 100.607 | 3.40% | GO |
| GO / NBQ | Cusip: 802385RC0 | CA | 750,000 | 3.47% | 8/1/2028 | 7/20/2018 | 100.607 | 3.40% | GO |
| TAXABLE |
CA | 750,000 | 3.47% | 8/1/2028 | 7/20/2018 | 100.607 | 3.40% | GO |
| Tenor | TREASURY YIELD | BQ GO AA+ AA AA- Muni Yield | TEY @ 21% | Advantage of Muni @21% Tax Rate | TEY @ 29.6% | Advantage of Muni @29.6% Tax Rate | TEY @ 37% | Advantage of Muni @37% Tax Rate |
| 3M | 2.00% | 1.53 | 1.94% | -0.06% | 2.18% | 0.18% | 2% | 0.43% |
| 6M | 2.16% | 1.57 | 1.99% | -0.17% | 2.23% | 0.07% | 2% | 0.33% |
| 1Y | 2.40% | 1.68 | 2.12% | -0.28% | 2.38% | -0.02% | 3% | 0.26% |
| 2Y | 2.61% | 1.83 | 2.31% | -0.30% | 2.59% | -0.02% | 3% | 0.29% |
| 3Y | 2.69% | 1.96 | 2.48% | -0.20% | 2.78% | 0.10% | 3% | 0.43% |
| 5Y | 2.76% | 2.20 | 2.78% | 0.02% | 3.12% | 0.36% | 3% | 0.73% |
| 7Y | 2.83% | 2.48 | 3.14% | 0.31% | 3.52% | 0.69% | 4% | 1.10% |
| 10Y | 2.86% | 2.83 | 3.58% | 0.72% | 4.02% | 1.16% | 4% | 1.63% |
| 30Y | 2.98% | 3.50 | 4.43% | 1.45% | 4.97% | 1.99% | 6% | 2.57% |
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