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
10/23/19	1.74	1.65	1.64	1.58	1.58	1.58	1.58	1.67	1.77	2.06	2.25
10/24/19	1.75	1.67	1.65	1.59	1.58	1.58	1.58	1.67	1.77	2.08	2.26
10/25/19	1.73	1.66	1.66	1.60	1.63	1.62	1.62	1.71	1.80	2.10	2.29
10/28/19	1.74	1.65	1.65	1.60	1.64	1.64	1.66	1.75	1.85	2.16	2.34
10/29/19	1.66	1.63	1.64	1.59	1.64	1.65	1.66	1.74	1.84	2.15	2.33

                                                                                                                                                     Source: U.S. Department of the Treasury, as of 10/29/2019

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Over the past year, as rates have continued to ratchet down, many investors have voiced several reasons to “stay in cash”. That has been the case particularly for “traditional” tax-free investors. Some of the more common include:

• “With municipal bond yields so low, aren’t I better off investing in cash equivalents”?
• Municipal credits are too difficult to monitor.
• We are a C Corp, municipals no longer make sense for us.

Let’s address these in order.

Sitting out a period of low yields amounts to market timing. Successful market timing is extremely difficult. History has shown that market timing, even for professional money managers, is almost impossible because no one can predict exactly when rates will rise.

Although municipal credits have risks, when properly managed, they have historically been small. State and local officials, because of balanced budget restraints, have for the most part been prudent managers of their funds.

As for Corporate tax rates, let’s take a look at where we are from an historical prospective.

The Corporate tax rate has been around now for 110 years. Starting from a paltry beginning of 1 percent in 1910, the corporate rate hit a peak of 52.80 percent in 1968. Perhaps the most telling statistic is that the current tax rate for C corporations is only 21 percent, and is well below the 110 year average of 32.58%.

With Federal deficits running at record highs and a Presidential election in one year, some are predicting that over the next few years, corporate tax rates are more likely to move higher with little probability of moving lower. So let’s compare 3 different investments, in three different maturities. Yesterday we underwrote AA rated Andover Kansas G.O.’s. Yield and maturity comparisons are:
As you can see, even at today’s tax rates, municipals make sense. In addition, any increase in future tax rates, would likely increase the value of existing holdings. Tax-free investing is a long-term proposition.
 

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.

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