Tuesday, August 25, 2020 |
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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 • Natalie Regan • Aaron Stoffer • David Farris |
| 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 |
| 08/18/20 | 0.08 | 0.09 | 0.13 | 0.13 | 0.14 | 0.17 | 0.27 | 0.47 | 0.67 | 1.16 | 1.40 |
| 08/19/20 | 0.07 | 0.11 | 0.12 | 0.13 | 0.14 | 0.17 | 0.29 | 0.48 | 0.68 | 1.20 | 1.42 |
| 08/20/20 | 0.08 | 0.11 | 0.13 | 0.12 | 0.13 | 0.15 | 0.26 | 0.46 | 0.65 | 1.15 | 1.38 |
| 08/21/20 | 0.07 | 0.10 | 0.12 | 0.13 | 0.16 | 0.16 | 0.27 | 0.46 | 0.64 | 1.13 | 1.35 |
| 08/24/20 | 0.09 | 0.12 | 0.12 | 0.14 | 0.14 | 0.18 | 0.28 | 0.47 | 0.65 | 1.14 | 1.35 |
Source: U.S. Department of the Treasury, as of 08/24/2020
Taxable vs. Tax-Free Municipals
Taxable vs. Tax-Free Municipals
Depending on a corporation’s filing election of either S or C Corp, an assumed tax bracket can be the deciding factor between similar municipal offerings with differing tax provisions. Ultimately, investors will compare tax-free yields vs. taxable yields on the merits of Taxable Equivalent Yield (TEY: calculated as Net Tax Free Rate / reciprocal of tax bracket). For banking companies the level of interest rates influences this as well (as it pertains to determining the applicable TEFRA penalty). Of course this is an election year and investors will ponder what the possibility of a changing tax code may mean for both S and C Corp municipal portfolios. In Dec 2017 President Trump signed the Tax Cuts and Jobs Act (TCJA) bringing sweeping changes to the tax code. As tax brackets fell, tax-free muni bond investors worried the lower tax rates would diminish the asset class’ relative attraction (that fear was misplaced as buyers did not depart). If a new administration raises tax brackets, tax-free municipals could thrive yet again as a broadening audience of investors seeks the shelter of tax-free income. Tax law doesn’t change overnight (so there will be time to adjust the portfolio) but keeping the possibility in mind aids in the product selection process. The examples shown below frame the debate.
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