Wednesday, October 4, 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
9/27/17	.99	1.07	1.20	1.33	1.47	1.60	1.91	2.14	2.31	2.62	2.86
9/28/17	.97	1.06	1.18	1.31	1.45	1.59	1.89	2.13	2.31	2.63	2.87
9/29/17	.96	1.06	1.20	1.31	1.47	1.62	1.92	2.16	2.33	2.63	2.86
10/02/17	.95	1.01	1.22	1.31	1.49	1.63	1.94	2.17	2.34	2.64	2.87
10/03/17	1.01	1.07	1.21	1.32	1.47	1.62	1.92	2.15	2.33	2.63	2.87

                   

Source: U.S. Department of the Treasury, as of 10/03/17

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Achieving the Best Taxable Equivalent Yield
 

As enticing as the term “tax free income” is, interest in tax free income is likely dependent on an investors tax bracket.  What we want is the best taxable equivalent yield as we compare tax free (municipal) yields to other fixed income investment opportunities.

 

Looking at yesterday’s municipal yield scales, let’s review the Johnson County Community College, KS in 5 years offered at 1.44%, tax free at the U.S. level and tax free at the Kansas state level.  Comparing this investment to U.S. Treasuries (also exempt from any state income tax), the calculations are as follows assuming the current tax rate proposals for individuals comes to fruition (i.e. 3 tax brackets:  15%, 25%, and 35%).

 

U.S. Treasury bonds due in 5 years are currently yielding 1.91%. Comparing the Johnson County Community College, KS bond to this Aaa Treasury credit goes like this:

 

A 1.44% yield to a Kansas resident would be a 2.22% taxable equivalent yield in the 35% bracket.  It would be a 1.92% taxable equivalent yield in the 25% bracket; and it would equate to a 1.69% taxable equivalent yield in the 15% bracket.  So, if a customer says “I want tax free yields”, the question to them is “What is your marginal tax bracket?”.

 

As you can see from the example above, the tax equivalent yield advantage is great in the top bracket, negligible in the middle bracket, but negative in the lowest bracket.
 

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