Wednesday, January 17, 2018
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
1/9/18	1.27	1.44	1.60	1.78	1.98	2.09	2.33	2.46	2.55	2.72	2.88
1/10/18	1.31	1.42	1.59	1.78	1.98	2.08	2.32	2.47	2.55	2.73	2.88
1/11/18	1.32	1.43	1.58	1.77	1.98	2.09	2.32	2.46	2.54	2.72	2.91
1/12/18	1.31	1.43	1.59	1.78	1.99	2.12	2.35	2.48	2.55	2.71	2.85
1/16/18	1.33	1.45	1.63	1.79	2.03	2.12	2.36	2.48	2.54	2.69	2.83

                                                                                       Source: U.S. Department of the Treasury, as of 1/16/18  

Good News / Questions

Good news:  The tax reform bill signed in late 2017 will have the effect of most individuals’ and corporations’ taxes going down, at least for awhile.  Importantly, corporate rates will be lowered to a maximum rate of 21%.

Questions:  If all are honest, they will tell you they do not know how some of it will work, especially for Sub S corporations.

Since many banks are Sub S, we are all anxiously anticipating clarification, ultimately from the US Treasury / IRS (Stay tuned we will discuss tomorrow).

For individuals we do know the following:

Marginal tax brackets are changing (going down) and the ranges of income for each bracket are changing (expanding to the upside).  Other tax law changes could dull the effect of these lower rates and higher thresholds. Specifically, the amount that can be deducted for mortgage interest, and with an even greater impact, SALT (state and local taxes) deductions are being severally curtailed.  The total maximum allowed to be deducted for individuals will be $10,000.  This could be a dramatic change for high earners in highly taxed states.

All of these things will alter the taxable equivalent yields on “tax free” municipals for individuals.  Let’s consider the taxable equivalent yield (at the Federal level only) of a 3.00% tax free municipal in 2017 versus 2018, for a married couple filing jointly.

Again, with marginal rates decreasing, tax bracket income limits have been raised. 

This comparison is general, for illustration purposes.  Your accountant can speak to your situation specifically.

With new tax brackets in place will tax free rates go up to match the 2017 tax equivalent yields, or will we settle for less spread?

Tomorrow:  The confusion of the new tax rules for Sub S banks.

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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