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Friday, February 12, 2021
 

MANAGING DIRECTOR:

Scott Carrithers
 


PORTFOLIO SALES AND SERVICE:
George Morris • Chris Thompson • Sean Doherty • Kevin Doyle • Mark Tranckino
Jeff Goble • Nicole Burczyk • Natalie Regan • Aaron Stoffer • David Farris • Lonnie Harris
 Brian Schaff • Josh Kiefer • Robert Schuyler • Tom Toburen • Aaron Hemphill



 
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
02/05/21 0.02 0.03 0.05 0.06 0.09 0.19 0.47 0.83 1.19 1.79 1.97
02/08/21 0.04 0.05 0.05 0.07 0.11 0.20 0.48 0.83 1.19 1.78 1.96
02/09/21 0.04 0.04 0.06 0.07 0.11 0.19 0.48 0.83 1.18 1.78 1.95
02/10/21 0.05 0.05 0.06 0.07 0.11 0.19 0.46 0.80 1.15 1.75 1.92
02/11/21 0.05 0.05 0.06 0.07 0.11 0.19 0.46 0.81 1.16 1.77 1.94
                                                                                                                                                                  Source: U.S. Department of Treasury as of 2/11/2021

 
A Municipal Trader's Perspective
 
 
The municipal market continues to be driven by technical pressures in the form of persistent demand from net inflows to municipal mutual funds, along with the usual demand from bonds that have been called or matured.  This helps explain the consistent appetite for tax-exempt bonds throughout the current historically low rate environment (see charts below).  There is also a growing concern for higher taxes ahead, and therefore tax-free securities.
The New Year is off to a slow start, as overall municipal issuance is down 12% YOY.  The issuance of taxable municipals has increased as a percentage of all newly issued municipal bonds, now comprising about 30%.  Accordingly, the supply of newly issued tax-exempt bonds is less than it would be otherwise. This trend will likely continue, as long as benchmark taxable rates remain historically low and municipalities aren’t allowed to once again advance refund higher coupon bonds with newly issued lower coupon tax-exempt bonds.

Given these technical factors, now might be a great time to sell some of your longer duration municipals.  With the ratios of municipals to Treasuries at all-time lows, fixed-income investors might be well advised to lock-in gains.  Ratios haven’t been this low in more than 20 years.   

Please let us know if you’d like to discuss this further.