| Tuesday, November 5, 2019 |
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|---|---|---|---|---|---|---|---|---|
| MANAGING DIRECTOR: Scott Carrithers PORTFOLIO SALES AND SERVICE: Steve Panknin • George Morris • Jeff Goble • Chris Thompson • Sean Doherty 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 |
| 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 |
| 10/30/19 | 1.61 | 1.62 | 1.62 | 1.59 | 1.61 | 1.60 | 1.61 | 1.69 | 1.78 | 2.08 | 2.26 |
| 10/31/19 | 1.59 | 1.54 | 1.57 | 1.53 | 1.52 | 1.52 | 1.51 | 1.60 | 1.69 | 2.00 | 2.17 |
| 11/01/19 | 1.58 | 1.52 | 1.55 | 1.53 | 1.56 | 1.55 | 1.55 | 1.63 | 1.73 | 2.03 | 2.21 |
| 11/04/19 | 1.58 | 1.53 | 1.57 | 1.56 | 1.60 | 1.59 | 1.60 | 1.69 | 1.79 | 2.10 | 2.27 |
Do Tax-Free Municipal Bonds Offer a Hidden Value …?
The Tax Cuts and Jobs Act of 2017 reduced the top corporate tax rate from 35% to 21% - a reduction of 40%. Although corporations welcomed the tax relief, the taxable equivalent yields of tax-free assets held by many corporations were significantly reduced. Accordingly, the yield spreads, relative to benchmark securities, were much less than originally expected.
Fast forward to the Presidential and Congressional elections of 2020. Depending on the outcome, corporate tax rates may be headed higher. Senator Joe Biden, Senator Elizabeth Warren, Senator Bernie Sanders and Mayor Pete Buttigieg are all on record in favor of rolling back President Trump’s corporate tax cut to 35%.
The chart below shows the potential increase in taxable equivalent yields and yield spreads available from tax-exempt municipal securities, should corporate tax rates be increased. There’s no expectation of further reductions in corporate taxes, even if President Trump is re-elected and Republicans take control of the House. On the other hand, if the Democratic nominee prevails and down-ballot voting flips the Senate, tax-free municipals would become more valuable. As such, tax-free municipal bonds offer a hidden value.
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