| Friday, September 15, 2017 | ||||||||
|---|---|---|---|---|---|---|---|---|
|
MANAGING DIRECTOR: |
||||||||
|
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 |
| 9/8/17 | .96 | 1.04 | 1.14 | 1.22 | 1.27 | 1.39 | 1.64 | 1.89 | 2.06 | 2.41 | 2.67 |
| 9/11/17 | .97 | 1.05 | 1.16 | 1.24 | 1.32 | 1.44 | 1.71 | 1.96 | 2.14 | 2.49 | 2.75 |
| 9/12/17 | .99 | 1.03 | 1.16 | 1.27 | 1.33 | 1.46 | 1.75 | 1.99 | 2.17 | 2.52 | 2.78 |
| 9/13/17 | .99 | 1.04 | 1.16 | 1.27 | 1.35 | 1.48 | 1.78 | 2.01 | 2.20 | 2.53 | 2.79 |
| 9/14/17 | .99 | 1.05 | 1.17 | 1.28 | 1.37 | 1.50 | 1.79 | 2.01 | 2.20 | 2.52 | 2.77 |
Source: U.S. Department of the Treasury, as of 9/14/17
____________________________________________________________________________________________
Municipal Traders Perspective
Think back about 8 ½ years to early 2009 and you will likely recall the enactment of the American Recovery and Reinvestment Act of 2009. Following the financial crisis, the Act was designed to stimulate the economy in a wide variety of ways, and many of the provisions related to municipal bonds in particular. For the 2009 and 2010 calendar year, the limit for “bank qualified” issuance was increased from $10 million to $30 million, a new “safe harbor” provision allowed banks to purchase non-bank qualified new issue municipals and receive the same tax treatment as BQ’s, Build America Bonds allowed municipalities to issue taxable bonds and receive a subsidy from the Treasury, and “Qualified School Construction Bonds” were issued with tax credits attached. All of these provisions translated into an ample supply of new-issue municipal bonds and bank portfolios at the time were gobbling them up.
You are probably wondering, “What does all this have to do with my municipal portfolio today?” Because the majority of municipals are traditionally issued with 10 year calls, many of the existing bonds issued in 2009 and 2010 have optional calls in 2019 and 2020. And a lot of these bonds (especially the taxable Build America Bonds) were issued with high coupons, so these bonds are prime candidates for advance refunding. Refunding’s have accounted for roughly 50% of all municipal issuance over the last several years.
As is almost always the case, there is an aggressive bid in the secondary market for these “pre-res” (which are essentially tax-free Treasury securities). Take a look at your own portfolio and you may likely find a fair number of bonds which have in fact been pre-refunded to 2019 and 2020 call dates or are prime candidates for that happening in the next year or two. If you are seeking an additional source of liquidity or want to extend your duration and swap into higher yielding bonds, selling these “pre-res” can raise cash while giving up very little yield. You should be able to come out of these bonds with yield give-ups in the 1.00 – 1.50 percentile range. Please contact your Capital Markets representative if you would like to discuss further.
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