Valuations Become Attractive for Longer-Maturity Municipal Bonds
February 8, 2019 By Sage Advisory
With investor demand focused on the front end of the yield curve, longer maturities have been neglected, leading to a divergence from Treasury yield movements. We believe valuations for long-dated municipal bonds offer the high-taxed individual an attractive entry point here.
The 30-Year Municipal to Treasury ratio, M/T for short, is a common valuation indicator that can easily spot undervalued and overvalued market conditions. As of early February, the 30-Year M/T ratio was greater than 100%, which has historically been a great time to enter the market.
The benefit to taxable investors is that current 30-year municipal yields are offered at the same yield level as equivalent Treasuries. For an investor with a 35% effective tax rate, the after-tax benefit for owning municipal bonds equates to approximately 1.00% of additional yield. If investors can withstand a modest level of price volatility, extending the maturity profile of a portfolio’s bond allocation will pay dividends over time.
Disclosures: This is for informational purposes only and is not intended as investment advice or an offer or solicitation with respect to the purchase or sale of any security, strategy or investment product. Although the statements of fact, information, charts, analysis and data in this report have been obtained from, and are based upon, sources Sage believes to be reliable, we do not guarantee their accuracy, and the underlying information, data, figures and publicly available information has not been verified or audited for accuracy or completeness by Sage. Additionally, we do not represent that the information, data, analysis and charts are accurate or complete, and as such should not be relied upon as such. All results included in this report constitute Sage’s opinions as of the date of this report and are subject to change without notice due to various factors, such as market conditions. Investors should make their own decisions on investment strategies based on their specific investment objectives and financial circumstances. All investments contain risk and may lose value. Past performance is not a guarantee of future results.
Sage Advisory Services, Ltd. Co. is a registered investment adviser that provides investment management services for a variety of institutions and high net worth individuals. For additional information on Sage and its investment management services, please view our web site at www.sageadvisory.com, or refer to our Form ADV, which is available upon request by calling 512.327.5530.