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.
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.
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
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