US Municipal Bonds: The tax-exempt and taxable municipal bond markets got rocked the past two weeks. Yields have been driven up and bond prices down. Driving factors are a combination of a heavy supply…
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of new issues and high profile municipal issuers in distress in part as a result of the current economic cycle.
- So far in November:
- The S&P National AMT-Free Municipal Bond Index (Investment grade, tax-exempt bonds) has seen its weighted average yield rise by 34 basis points to 3.87%. This equates to a 5.95% taxable equivalent yield at 35% tax rate. Year to date the index has a 3% total return.
- The ‘belly of the curve’ or the 10 year maturity range has been impacted by rising yields the most. The S&P AMT-Free Municipal Series 2019 Index (investment grade, tax-exempt) saw its yields rise by 46 basis points to a 3.24% (or 34bps higher than the ten year Treasury bond yield).
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Putting municipal bond defaults into perspective:
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S&P/Investortools Municipal Bond Index (broad benchmark index) had:
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12/31/2009: 156 bond issues in default totaling over $5.1billion in face value (or 0.42% of the par value of the total index)
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10/29/2010: 178 bond issues in default totaling over $6.1billion in face value (or 0.48% of the par value of the total index)
- Total index par value: over $1.26trillion.
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1 Index Inception September 2007
2 Index Inception September 2008
3 Index Inception August 2009
4 Index Inception October 200
5 Taxable Equivalent Yield based upon 35% tax rate
US Leveraged Loans:
The loan market has been on fire since the Labor Day weekend, although bids in the secondary market have cooled slightly with the recent selloff in the equity markets. Prices for the S&P/LSTA U.S. Leveraged Loan 100 Index have traded north of 92 everyday since November 5th closing last night at 92.09. Since hitting 95 on November 9th, bid prices for the S&P/LSTA Performing Loans Index have drifted lower closing at 94.72 yesterday.
As with the equity and other credit markets, loans have given back some of the gains seen earlier in the month as the second European Debt crisis of 2010 continues to play out. The S&P/LSTA U.S. Leveraged Loan 100 Index is now returning just +0.38% this month. The year to date gain is just over +8%. The broader S&P/LSTA Leverage Loan Index (LLI) is up 0.48% this month, just under 9% on the year. As a comparison, the S&P CDS High Yield Rolling Index is up 0.44% this month, over 3% on the year. The S&P/LSTA Performing Loans Index is now recording a 9.15% year to date return.
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Weighted Average Bid Price on |
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Total Return |
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11/18/2010 |
10/29/2010 |
9/30/2010 |
6/30/2010 |
12/31/2009 |
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MTD |
QTD |
YTD |
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S&P/LSTA U.S. Leveraged Loan 100 (LL100) |
92.09 |
91.34 |
90.46 |
88.35 |
87.68 |
|
0.38% |
2.26% |
8.10% |
|
S&P/LSTA Leveraged Loan (LLI) |
93.02 |
92.57 |
91.59 |
89.84 |
87.35 |
|
0.48% |
2.02% |
8.93% |
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S&P/LSTA Performing Loans |
94.72 |
94.38 |
93.29 |
91.35 |
89.82 |
|
0.55% |
2.13% |
9.15% |
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S&P CDS U.S. High Yield Rolling Index |
n/a |
n/a |
n/a |
n/a |
n/a |
|
0.44% |
2.36% |
3.38% |
Bloomberg Tickers:
S&P/LSTA U.S. Leveraged Loan 100 Index: total return index value: SPBDLL
S&P/LSTA U.S. Leveraged Loan 100 Index: weighted average bid price: SPBDLLB
Author: J.R. Rieger – Vice President, Fixed Income Indices
Source: ETFWorld – S&P Indices
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