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
12/18/19	1.56	1.56	1.58	1.54	1.63	1.67	1.74	1.86	1.92	2.22	2.35
12/19/19	1.54	1.57	1.57	1.52	1.62	1.65	1.73	1.84	1.92	2.21	2.35
12/20/19	1.57	1.58	1.58	1.52	1.63	1.67	1.73	1.84	1.92	2.21	2.34
12/23/19	1.57	1.59	1.60	1.53	1.64	1.67	1.75	1.86	1.93	2.22	2.35
12/24/19	1.55	1.58	1.61	1.53	1.62	1.64	1.72	1.83	1.90	2.20	2.33

                                                                                                                                                  Source: U.S. Department of the Treasury, as of 12/24/2019

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                                      Finding Value in Smaller Municipal Deals


As you may have seen and experienced, not all municipal bonds get called when the option is in the money.  Many times it is the smaller municipalities that do not call their bonds, and there are a number of reasons for that.  The overall cost benefit of calling a bond may not be compelling enough to execute such action, getting approval is a challenge due to management or board votes, the cash is not available for a redemption, etc.  However, investors should consider these inefficiencies as an advantage because smaller deals many times provide better yields, especially if the bonds are not called and kicks to maturity. 
 
Take a look at West Nodaway County School District R-1 headquartered in Burlington Junction, MO (offerings below), who recently issued a $1,170,000 deal as a refunding of a single outstanding bond due in 2035.  This refunding deal will replace the 2035 bond via a new structure of maturities in 2022-2029 callable in 2024.  The size of each maturity is just about $150,000.  Due to the small deal size, there is reason to believe that these bonds have a better chance of not being called and kick out to maturity. 
 
West Nodaway County School District R-1 in Burlington Junction, MO
AA+ Missouri State Aid Direct Deposit
BQ / GO Unlimited / Refunding

• 150k 3.00% 2028, callable in 2024 offered at 1.55% YTC / 2.22% YTM
• 155k 3.00% 2029, callable in 2024 offered at 1.60% YTC / 2.32% YTM

 
The tax equivalent yields (using a 21% tax rate) to the call are in line or better than non-callable brokered CDs maturing in 2024 (about 25bps over treasuries), but better yet the yield to maturity is better than other municipals yields due in 2028 or 2029.  Also, if you amortized the premium of these bonds to 2024, you’ll lock in a 3.00% book yield from then to maturity if the bonds are not called. 
 
There is limited downside with these bonds.  They are good credit, providing a good yield to call and possibly greater yield to maturity. 
 
Let us know if you have interest.



*Subject to prior sale and/or price change


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.

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