Instead of looking at what to buy start looking at what NOT to buy. The short end of the municipal bond market is extremely expensive in our opinion. Most money managers and legacy bond buyers were taught to ladder portfolios for 1-10 years. This has brought huge demand to that part of the curve pushing prices higher and yields lower. These bonds all yield in the 1% – 2% camp. An article just this morning states “ten-year U.S. state and local government bonds have risen to their most expensive prices relative to Treasuries since at least 2001” (Bloomberg News). Have a look at this chart to see how expensive 10 year munis are when measured by spread to treasuries:
There are plenty of bonds that yield close to or more than 3% and are tax exempt. We can point out those which we prefer. We look for attractive structures to increase our clients yield without sacrificing credit quality. Right now we like “kicker bonds.” These are higher coupon bonds that are priced to a call date and should reward you with more yield every year they remain uncalled past the initial call date. These bonds have been a clever way to add yield to a portfolio in this low rate environment without increasing modified duration.
To learn more about us, our strategy or kicker bond offerings, please call or email us anytime.