Portfolio Managers Report: Muni Bond Swaps are Back! 08/08/25

Friday, August 8, 2025
MANAGING DIRECTOR: Scott Carrithers PORTFOLIO SALES AND SERVICE: Chris Thompson • Sean Doherty • Mark Tranckino • Brian Schaff Natalie Regan • Aaron Stoffer • David Farris • Jeff Macy Josh Kiefer • Todd Czinege • Trey Valentine • Cody Kreutziger

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
08/01/25	4.33	4.28	4.11	3.86	3.68	3.66	3.76	3.96	4.22	4.79	4.82
08/04/25	4.37	4.25	4.10	3.83	3.68	3.64	3.74	3.94	4.19	4.77	4.79
08/05/25	4.36	4.24	4.12	3.91	3.73	3.69	3.78	3.97	4.21	4.76	4.78
08/06/25	4.36	4.24	4.12	3.90	3.72	3.67	3.78	3.98	4.23	4.80	4.82
08/07/25	4.34	4.24	4.11	3.91	3.73	3.69	3.79	3.99	4.25	4.80	4.83

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 08/07/2025.

Muni Bond Swaps are Back!

A near all-time record of primary issuance in the municipal bond market this year has driven long tax-free rates higher while heavy demand from Separately Managed Accounts and ETFs have driven short rates lower. This has resulted in the steepest municipal yield curve (2-20 year) we have seen in over ten years. Take a look at the steepness of the curve today vs. just one year ago and you can see that the pickup in yield from a two-year maturity to a twenty-year has grown from just 66 basis points one year ago to roughly 200 basis points today.

This dramatic difference in short and long rates presents an excellent opportunity to reposition your portfolio by swapping out of your lower coupon (2-3%) short municipal holdings and reinvesting the proceeds into longer 4-5% coupons.
Some of the benefits of executing a swap like this are:

Yield pickup increases monthly income, resulting in increased ROA
Small impact to overall portfolio duration
Time to recover loss should be less than one year
Greater upside potential for capital appreciation if rates fall

We recently executed a swap for a bank portfolio with these results:

Sold roughly $5 million munis with an average life of 2.33 years (all had coupons of 2.75 – 3.00%), generating a roughly $42,000 loss
Average taxable equivalent give-up yield was 4.87%
Purchased approximately $3mm high coupon municipals and approximately $2mm CMO Floaters with an average taxable equivalent yield of 5.75%
Earn-back period to recoup the loss was 7 months
Income enhancement to weighted average maturity was just over $135,000

We would be pleased to take a look at your portfolio to identify any opportunities to generate additional income. Please reach out to your sales representative if we can help.

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