3Q 2019 Review: Total Return Tax-Free Municipal Bond

The dramatic drop in Treasury yields at the beginning of August caused the muni market to take a pause in its great relative performance earlier in the year.

John R. Mousseau, CFA

The 10-year Treasury bond moved 52 basis points lower, going from 2.005% at the end of the second quarter to 1.48% at the end of August; and the 30-year Treasury bond moved 57 basis points lower, moving from 2.53% to 1.96% during the same period. In contrast, the 10-year AAA tax-free scale moved 43 basis points lower, and the 30-year AAA yield fell 42 basis points. This caused muni/Treasury yield ratios to move from 81% and 91% at the end of June to 84% and 96%, respectively, at the end of August. September saw a sell-off in yields at the beginning of the month, as the economic data was stronger than market participants expected. The 10-year peaked at 1.90%, and the 30-year topped out at 2.38% before rallying back down due to the bombing of oil facilities in Saudi Arabia. The volatility has cheapened muni/Treasury ratios to the current level of 89% in the 10-year range and 97% in the 30-year range. With a relatively heavy calendar, we have thus been able to buy some cheaper high-grade municipal bonds in the 130% yield ratio area, which makes for attractive placement in the longer end of our barbell strategy.

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

See John talk about bonds in relation to 3Q 2019 at the link or in the player below: Week In Review for Cumberland Advisors – 2019-09-27

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.