The equity and bond markets continue to see volatility in part driven from the European markets. Since the end of last week, yields for the 10 yr US Treasury bond rose by about 14 basis points as the global market continues to react to the uncertainty that springs from Greece wrestling with its budget woes….
For the municipal bond market, yields have been unchanged to slightly better as the municipal market holds in its narrow trading range.
The broad municipal bond market as represented by the S&P National AMT-Free Municipal Bond Index saw yields mainly unchanged through Thursday night. The yield to maturity of this index ended better by just 1 basis point to close at a 3.70 yield level. This index tracks the investment grade tax exempt bond market and has an average quality rating of AA. The S&P National municipal index has seen a year-to-date return of 3.5%.
I track the ten year range for municipal bonds using the S&P AMT-Free Municipal Series 2019 Index, which is an index of noncallable bonds with an average quality rating of AA. The yield for this index improved by 4 basis points so far this week to end last night at a level of 3.20. For the general municipal bond market, this part of the curve has seen the biggest movement this year, recording just over a 4.7 percent total return. The tax-exempt 3.20 yield is about 96% of the taxable ten year treasury yield. This ratio has been in the mid 90 percent range for the last four weeks. This part of the municipal bond curve may indicate that AA tax exempt municipal bonds may be undervalued relative to lower yields of the US Treasury. This is something for us to keep an eye on.
Even bonds from the state of California are holding their own. The S&P California AMT-Free Municipal Bond Index recorded a year-to-date return of 4.79% with its yield to maturity holding around the 3.98% level. The California index has outperformed most other state indices so far this year.
The S&P New York AMT-Free Municipal bond index has seen a year to date return of 3.34% and also is one of the state indices that is out performing many other state indices.
Bloomberg Tickers:
S&P National AMT-Free Municipal Bond Index: SPMUNUST
S&P California AMT-Free Municipal Bond Index: SPMUNCAT
S&P New York AMT-Free Municipal Bond Index: SPMUNNYT
Source: ETFWorld – Standard & Poor’s
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