Tuesday, December 5, 2017
MANAGING DIRECTOR: Scott Carrithers   PORTFOLIO SALES AND SERVICE: Steve Panknin • George Morris • Jeff Goble • Chris Thompson • Sean Doherty Robert Brickson • 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
11/28/17	1.16	1.30	1.46	1.61	1.75	1.85	2.07	2.24	2.34	2.58	2.77
11/29/17	1.17	1.29	1.45	1.61	1.78	1.86	2.09	2.27	2.37	2.62	2.81
11/30/17	1.14	1.27	1.44	1.62	1.78	1.90	2.14	2.31	2.42	2.65	2.83
12/01/17	1.14	1.27	1.45	1.62	1.78	1.90	2.13	2.28	2.37	2.58	2.76
12/04/17	1.16	1.29	1.45	1.66	1.80	1.93	2.15	2.29	2.37	2.58	2.77

                                                                                                                                         Source: U.S. Department of the Treasury, as of 12/04/17  

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Waiting on Tax Reform

Lots of action in response to the Senate’s version of tax reform passing last weekend. The municipal bond market is rushing to market this week with roughly triple the average weekly issuance for the year. That may result in record issuance for some time to come, given the desired reduction in possible tax-exempt supply in the future. Both the House and Senate Bills would prohibit tax-exempt advance refunding, estimated to be about 30% of the market. In addition to eliminating advance refunding, the House wanted to prohibit tax-exempt stadium finance, tax credit bonds and private activity bonds. Anyone’s guess about what will eventually happen.

Most importantly, both the House and the Senate agreed to reduce the corporate tax rate from 35% to 20%. As we understand it, the House says effective 2018 and the Senate says 2019. On Saturday Mr. Trump said the new corporate rate “could be 22% when” a final bill emerges.  All these changes would have an important effect on the value of municipal bonds. Restricted supply would be positive, lower tax rates would be negative, for tax-exempt prices.

If the corporate tax rate declines from 35% to 20-22% in 2018 or 2019, “C” corporation banks may want to do some tax swap trading this year, or next year. Most banks have some losses in their bond portfolios due to the run-up in short term rates from the low point in early September.  Those banks could take advantage of the current higher tax rate to share losses with Uncle Sam, before the rate drops, possibly in 2018.

The reinvestment rates are the best we have seen in years, particularly in the 2- 5 year area of the Treasury curve. The current rates on that part of the curve haven’t been available for 7-9 years. The yield curve has flattened, but a positive slope remains.

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