High Yield Munis Still Cheaper Than Corporate Junk

U.S. Municipal Bonds: (Data as of May 16,2013)

Corporate junk bond yields have risen as mutual funds have seen outflows. Meanwhile, municipal high yield bonds have held their own. A rare twist in the markets may be ending as a result: yields of tax free high yield municipal bonds are 34bps higher (Yield to Worst) than high yield corporate bonds. That spread has narrowed from last week’s 56bp spread.

High yield corporate bonds tracked in the S&P U.S. Issued High Yield Bond Index have returned just under 5% year to date but lost ground the past several days as fund outflows weigh on the market driving prices down and the weighted average yield (yield to worst) up by 22bps since last week to end at 4.88%.

High yield municipal bonds tracked in the S&P Municipal Bond High Yield Index have seen a 3.9% year to date return with yields remaining fairly steady this week to end at 5.22%.
o The Taxable Equivalent Yield of these same municipal bonds is over 8% when using a 35% tax rate.

High Yield Muni & Corporate Bond Index Yields

High Yield Muni & Corporate Bond Index Yields

The S&P National AMT-Free Municipal Bond Index is up 1.26% year to date modestly outperforming investment grade corporate bonds tracked in the S&P U.S. Issued Investment Grade Corporate Bond Index which has returned just under 1%.

The 5 year range of the municipal bond curve is keeping up with the overall market as the 5 year S&P AMT-Free Muni Series 2018 Index has returned 1.14%, while longer municipal bonds in the S&P Municipal Bond 20+ year Index have recorded a total return of 2.14% year to date with yields remaining steady over the course of the week.

Puerto Rico hasn’t left the spotlight and bonds from Puerto Rico have performed like the high yield market returning 3.77% year to date.

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