4Q 2019 Review: Total Return Tax-Free Municipal Bond

Author: John R. Mousseau, CFA, Post Date: January 3, 2020
image_pdfimage_print

The municipal bond market saw interest rates back up very slightly in sympathy with the Treasury market during the fourth quarter of 2019.

John R. Mousseau, CFA

Ten- and thirty-year AAA tax-free yields started the quarter at 1.42% and 2.01% respectively. As the curtain dropped on 2019 they closed at 1.44% and 2.09%. However the ratio to Treasury yields fell, with the ten- and thirty-year muni/Treasury yield ratios starting the quarter at 85% and 95% respectively and ending the quarter at 76% and 88%. This reflected ongoing demand for tax-free bonds in the wake of the 2017 tax bill, which eliminated deductions for state taxes and local property taxes.

Muni bond supply ended the year at approximately $400 billion. This was higher than we projected at the start of the year. Though tax-free advance refundings are significantly reduced because of the 2017 tax bill, municipalities decided to sell new issues to take advantage of the very low interest rates we witnessed this summer, with thirty-year AAA yields hitting 2% as thirty-year Treasuries also went briefly below 2% yields. Taxable refundings also picked up significantly when Treasury yields fell. This meant that taxable muni rates were still lower than the original tax-free yield on bonds that were being refunded.

The first quarter of 2020 should see the trend of higher supply being met by demand, particularly the ongoing demand for tax-free bonds in high-tax states such as California and New York.

John R. Mousseau, CFA
President, Chief Executive Officer & Director of Fixed Income
Email | Bio

See John talk about the year 2019 in bonds at the link or in the player below: The Year 2019 in Bonds recapped by John Mousseau


 


Links to other websites or electronic media controlled or offered by Third-Parties (non-affiliates of Cumberland Advisors) are provided only as a reference and courtesy to our users. Cumberland Advisors has no control over such websites, does not recommend or endorse any opinions, ideas, products, information, or content of such sites, and makes no warranties as to the accuracy, completeness, reliability or suitability of their content. Cumberland Advisors hereby disclaims liability for any information, materials, products or services posted or offered at any of the Third-Party websites. The Third-Party may have a privacy and/or security policy different from that of Cumberland Advisors. Therefore, please refer to the specific privacy and security policies of the Third-Party when accessing their websites.

Sign up for our FREE Cumberland Market Commentaries

Cumberland Advisors Market Commentaries offer insights and analysis on upcoming, important economic issues that potentially impact global financial markets. Our team shares their thinking on global economic developments, market news and other factors that often influence investment opportunities and strategies.

cumber map
Cumberland AdvisorsĀ® is registered with the SEC under the Investment Advisers Act of 1940. All information contained herein is for informational purposes only and does not constitute a solicitation or offer to sell securities or investment advisory services. Such an offer can only be made in the states where Cumberland Advisors is either registered or is a Notice Filer or where an exemption from such registration or filing is available. New accounts will not be accepted unless and until all local regulations have been satisfied. This presentation does not purport to be a complete description of our performance or investment services. Please feel free to forward our commentaries (with proper attribution) to others who may be interested. It is not our intention to state or imply in any manner that past results and profitability is an indication of future performance. All material presented is compiled from sources believed to be reliable. However, accuracy cannot be guaranteed.
Loading...