| Friday, August 11, 2023 |
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MANAGING DIRECTOR: |
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US Treasury Market |
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| Date | 1 mo | 3 mo | 6 mo | 1 yr | 2 yr | 3 yr | 5 yr | 7 yr | 10 yr | 20 yr | 30 yr |
| 08/04/23 | 5.34 | 5.40 | 5.45 | 5.32 | 4.77 | 4.45 | 4.14 | 4.09 | 4.04 | 4.37 | 4.20 |
| 08/07/23 | 5.38 | 5.41 | 5.46 | 5.33 | 4.77 | 4.46 | 4.17 | 4.13 | 4.09 | 4.43 | 4.27 |
| 08/08/23 | 5.37 | 5.44 | 5.50 | 5.32 | 4.75 | 4.42 | 4.11 | 4.07 | 4.03 | 4.37 | 4.21 |
| 08/09/23 | 5.35 | 5.44 | 5.49 | 5.35 | 4.81 | 4.44 | 4.14 | 4.08 | 4.01 | 4.34 | 4.17 |
| 08/10/23 | 5.36 | 5.44 | 5.49 | 5.33 | 4.85 | 4.51 | 4.23 | 4.18 | 4.11 | 4.43 | 4.25 |
The data in the table above is static as of the time it was pulled, so rates may have changed. Treat all data in this table and PMR as indications only and availability is always subject to change. This information was pulled manually from sources we believe to be reliable. New source, as of 12/12/2022, Bloomberg, L.L.P. As of: close of business 8/10/2023
OPPORTUNITY IN AAA TEXAS MUNICIPALS
Last month, the Texas State Legislature passed a record $18.6 billion property relief package which, if passed by voters in November, will lower the school property tax rate for all homeowners and business properties. Texas homeowners will also see their homestead exemption increase from $40,000 to $100,000, meaning that primary residence homeowners will not be taxed on the first $100,000 of their home valuation. These bills represent the largest tax cut in Texas history.
This development has impacted the issuance of municipal bonds in Texas because the increase in the homestead exemption will reduce the overall tax base of municipalities, and in some cases, make it more difficult to qualify new bond issues for approval. The current Legislation includes a provision which allows school districts to be “held harmless” for the loss of interest and sinking fund tax revenues for all debt issued prior to September 1, 2023. This has led to an exceptionally high issuance of Texas school bonds over recent weeks. In 2022, total issuance of Texas school bonds backed by the Permanent School Fund (PSF) was just over $16 billion (or an average of just over $1.3 billion per month). In the last month alone, we have seen PSF issuance just shy of $10 billion.
This glut of bonds backed by what we believe to be the most solid municipal bond enhancement in the country has created a bit of a supply/demand imbalance as the market has struggled to absorb so much so fast. We view this as a rare opportunity to obtain high-grade bonds at prices considered “cheap” relative to alternatives. The vast majority of these bonds are not bank qualified, but they are an extremely popular and safe investment for individuals in higher tax brackets and corporations.
We particularly like the value in the 20-year range where bonds are available at 4.00% or better tax-free. For an investor in the top 37% tax bracket and subject to the 3.8% Obamacare surtax, 4.00% tax-free equates to a 6.757% taxable equivalent yield. (One example that we currently own and offer is shown below). As issuance dries up and the current supply of bonds gets absorbed, we predict this opportunity will not last. Please let us know if you would like to discuss further or if we can assist in any way.
This development has impacted the issuance of municipal bonds in Texas because the increase in the homestead exemption will reduce the overall tax base of municipalities, and in some cases, make it more difficult to qualify new bond issues for approval. The current Legislation includes a provision which allows school districts to be “held harmless” for the loss of interest and sinking fund tax revenues for all debt issued prior to September 1, 2023. This has led to an exceptionally high issuance of Texas school bonds over recent weeks. In 2022, total issuance of Texas school bonds backed by the Permanent School Fund (PSF) was just over $16 billion (or an average of just over $1.3 billion per month). In the last month alone, we have seen PSF issuance just shy of $10 billion.
This glut of bonds backed by what we believe to be the most solid municipal bond enhancement in the country has created a bit of a supply/demand imbalance as the market has struggled to absorb so much so fast. We view this as a rare opportunity to obtain high-grade bonds at prices considered “cheap” relative to alternatives. The vast majority of these bonds are not bank qualified, but they are an extremely popular and safe investment for individuals in higher tax brackets and corporations.
We particularly like the value in the 20-year range where bonds are available at 4.00% or better tax-free. For an investor in the top 37% tax bracket and subject to the 3.8% Obamacare surtax, 4.00% tax-free equates to a 6.757% taxable equivalent yield. (One example that we currently own and offer is shown below). As issuance dries up and the current supply of bonds gets absorbed, we predict this opportunity will not last. Please let us know if you would like to discuss further or if we can assist in any way.
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