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Muni Yields Hit Lowest Since 1952 as Fiscal Crisis Tests a Haven
Muni Yields Hit Lowest Since 1952 as Fiscal Crisis Tests a Haven by Amanda Albright, 8/5/20
/America’s municipal bondholders have never been paid so little for taking on so much risk.
The yields on state and local government bonds have steadily dwindled over the past month, even as the resurgent coronavirus pandemic is threatening to prolong the deep recession that’s dealing a financial setback to borrowers in virtually every corner of the $3.9 trillion market./
Anyone buy more munis recently? Maybe one of safer bets out there. More may have jumped ship to munibonds
I hold a huge % in HY Munies since early May, and they made me lots of money. The usual, I don't follow articles and experts just charts, uptrend and prices.
I don’t think the article says you haven’t made money since may, it is parroting that old saying (by Irving Kristol) “if something can’t last forever, it will end”. I’ve made some money In Hy Munis this year also but how much lower can rates go? Plus, as the article notes, what about defaults? Would you buy a Chicago revitalization bond today? It all makes me think that Whitney women was right, just early.
Just eye-balling it, the % rate on a 2-year top-grade muni appears to be 0.1% - That can’t be right? But if it were, than a $1,000 muni held to maturity (for 2 years) would yield $2 (plus a few pennies compounding). That’s less than what a Big Mac costs. (And, after 2 years the Big Mac would have gone up in price.) Sounds like a vicious downward spiral.
If you mouse over the curve, you'll get the 0.087% figure (roughly the 0.1% you eyeballed). Yes, sir, that's about a half buck every six months. And you'd have to reinvest that king's ransom yourself to get it to compound.
Be of good cheer - it's tax free. Unlike that Big Mac.
Thanks. There’s some serious implications underlying this (somewhat silly) valuation picture. Those relate, IMHO, to all asset classes (stocks, commodities, gold, real estate, etc.).
The only way I can see the current out-of-whack valuation picture continuing is if the Fed continues cutting rates all the way to 0; than goes negative; than than starts buying junk (bonds that is); and than eventually starts buying equities + whatever else they haven’t yet bought (... maybe used cars and California red wine). It would also help if the politicians continue to curtail taxing while increasing spending. This would all play out over many years of course.
Thanks. There’s some serious implications underlying this (somewhat silly) valuation picture. Those relate, IMHO, to all asset classes (stocks, commodities, gold, real estate, etc.).
The only way I can see the current out-of-whack valuation picture continuing is if the Fed continues cutting rates all the way to 0; than goes negative; than than starts buying junk (bonds that is); and than eventually starts buying equities + whatever else they haven’t yet bought (... maybe used cars and California red wine). It would also help if the politicians continue to curtail taxing while increasing spending. This would all play out over many years of course.
But what happens when the music stops?
For years after 2008-9 investors, journalists and "experts" said the above. Valuation is still high, inflation will be up, rates can only go up. and we had the longest bull market.
Investors who stayed out keep complaining.
Are you in? Are you shorting since valuation are silly?
Your hindsight is impeccable 1K. I’ll give you that. I’ll try here to answer your somewhat condescending questions:
- I’m by nature a conservative investor. Within a diversified portfolio, I‘ve always maintained some significant exposure to equities. So nothing’s changed just because my analysis tonight concluded we’re running on “borrowed time“. Considering 22 years retired, I’m likely a lot more more aggressively invested than many in that situation - and less so than others.
- Generally, I feel it’s foolish to try and invest according to a reading the macro tea leaves. I’ve said as much here on more than one occasion. I rarely do it - perhaps on occasion for small speculative gambits.
- Yes, there have always been doomsayers: Granville, Dent, Rogers, Faber, Hussman to cite a few. I’ve listened to all of them . Never fell in love with any. Although I’ll say Rogers is certainly a glib and engaging talker.
- Short the market? Not me! Takes nerves of steel. And greater insights into specific companies than I possess. Do any of my funds short? Probably. In particular alternative fund TMSRX (about 10% of my holdings) has the ability to short.
- You didn’t ask, but my post was not intended or offered as actionable investment advise. Indeed, it suggested there might be many more years of rising asset prices.
I hope I’ve answered your questions.
So what are you overlooking here in your rather derisive and dismissive antipathy towards my thoughts? Probably the 35+ year downtrend in global interest rates. Do you really think the past 35+ years of generally rising asset prices would have played out that way had the 10-year risen from below 1% to over 10% during those years instead of the other way around? And do you choose to ignore the massive and unprecedented Federal Reserve interventions, both during the ‘07-‘09 market wreck and again after the March pummeling? Why would you find their propping up wine growers and auto sales companies that far-fetched? BOJ has purchased stocks in the past. And our own Federal Reserve is currently buying / owns corporate bonds rated just one notch above junk.
BTW- You’ll be glad to learn the Pres. is now talking up further tax cuts - apparently to be enacted by by decree.
Hank, excellent response. Over the years I have seen many investors that make changes in their portfolio based on prediction and opinions of "experts" just to find later they were wrong. I don't blame these journalists their intention is to grab attention with their headlines, after all, every time you click and read they get paid. Probably over 95% of article are useless, reparative, recyclable and not actionable. Just to name one, Gundlach, the bond "king", predicted that the 10 year treasury will be at 6% in 2021 (link). This is why I don't pay attention to any of these. As a trader I just follow charts, uptrends and prices but I'm in the market invested at 99+% about 97-98% of the time.
Comments
The usual, I don't follow articles and experts just charts, uptrend and prices.
I’ve made some money In Hy Munis this year also but how much lower can rates go? Plus, as the article notes, what about defaults? Would you buy a Chicago revitalization bond today? It all makes me think that Whitney women was right, just early.
Current AAA muni yield curve:
https://emma.msrb.org/ToolsAndResources/BloombergYieldCurve?daily=True
Just eye-balling it, the % rate on a 2-year top-grade muni appears to be 0.1% - That can’t be right? But if it were, than a $1,000 muni held to maturity (for 2 years) would yield $2 (plus a few pennies compounding). That’s less than what a Big Mac costs. (And, after 2 years the Big Mac would have gone up in price.) Sounds like a vicious downward spiral.
Be of good cheer - it's tax free. Unlike that Big Mac.
The only way I can see the current out-of-whack valuation picture continuing is if the Fed continues cutting rates all the way to 0; than goes negative; than than starts buying junk (bonds that is); and than eventually starts buying equities + whatever else they haven’t yet bought (... maybe used cars and California red wine). It would also help if the politicians continue to curtail taxing while increasing spending. This would all play out over many years of course.
But what happens when the music stops?
and we had the longest bull market.
Investors who stayed out keep complaining.
Are you in?
Are you shorting since valuation are silly?
- I’m by nature a conservative investor. Within a diversified portfolio, I‘ve always maintained some significant exposure to equities. So nothing’s changed just because my analysis tonight concluded we’re running on “borrowed time“. Considering 22 years retired, I’m likely a lot more more aggressively invested than many in that situation - and less so than others.
- Generally, I feel it’s foolish to try and invest according to a reading the macro tea leaves. I’ve said as much here on more than one occasion. I rarely do it - perhaps on occasion for small speculative gambits.
- Yes, there have always been doomsayers: Granville, Dent, Rogers, Faber, Hussman to cite a few. I’ve listened to all of them . Never fell in love with any. Although I’ll say Rogers is certainly a glib and engaging talker.
- Short the market? Not me! Takes nerves of steel. And greater insights into specific companies than I possess. Do any of my funds short? Probably. In particular alternative fund TMSRX (about 10% of my holdings) has the ability to short.
- You didn’t ask, but my post was not intended or offered as actionable investment advise. Indeed, it suggested there might be many more years of rising asset prices.
I hope I’ve answered your questions.
So what are you overlooking here in your rather derisive and dismissive antipathy towards my thoughts? Probably the 35+ year downtrend in global interest rates. Do you really think the past 35+ years of generally rising asset prices would have played out that way had the 10-year risen from below 1% to over 10% during those years instead of the other way around? And do you choose to ignore the massive and unprecedented Federal Reserve interventions, both during the ‘07-‘09 market wreck and again after the March pummeling? Why would you find their propping up wine growers and auto sales companies that far-fetched? BOJ has purchased stocks in the past. And our own Federal Reserve is currently buying / owns corporate bonds rated just one notch above junk.
BTW- You’ll be glad to learn the Pres. is now talking up further tax cuts - apparently to be enacted by by decree.
MORE TAX CUTS COMING?
I don't blame these journalists their intention is to grab attention with their headlines, after all, every time you click and read they get paid. Probably over 95% of article are useless, reparative, recyclable and not actionable.
Just to name one, Gundlach, the bond "king", predicted that the 10 year treasury will be at 6% in 2021 (link).
This is why I don't pay attention to any of these. As a trader I just follow charts, uptrends and prices but I'm in the market invested at 99+% about 97-98% of the time.