Tags: short | term | municipal | debt | bond | market | rout

Short-Term Municipal Debt Keeps Defying the Bond Market Rout

Short-Term Municipal Debt Keeps Defying the Bond Market Rout
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Friday, 20 July 2018 08:34 AM

Staying short has paid off for municipal-bond investors.

Municipal bonds maturing in one to two years have outperformed every other maturity group in the $3.8 trillion municipal-bond market, with a 1.08 percent return, according to Bloomberg Barclays indexes. Short-term municipals are even beating U.S. investment-grade corporate bonds, which have posted a loss of 2.37 percent year to date.

Short-term municipals provide a shield from rising interest rates, and that’s sent retail investors flocking to the securities this year. "You haven’t seen the yield increase there that would drive down prices, and then, as part of that, the concern over higher rates has pushed more investors on to the front of the curve," said Duane McAllister, a senior portfolio manager at Baird Advisors, which manages $3 billion in municipal bonds.

The yield on the one-year municipal benchmark was about 1.4 percent Monday, close to where it stood at the start of 2018. The yield on the 30-year benchmark stands at almost 3 percent, about 0.3 percentage points higher than it was at the start of the year.

The clamor for short-dated securities has made them more expensive in comparison to U.S. Treasuries. One-year triple-A rated municipals yield just 61.5 percent of Treasuries, the lowest since September 2017.

Dale Hoffman, who manages $10.4 billion in municipal debt as assistant vice president at USAA Asset Management Co., said he expects investors to continue to want to stay short given the likelihood for interest rates to keep rising. "You have separately-managed accounts and bond funds with so much cash just chasing a lot on the short end," he said.

The broader municipal-bond market index turned positive last week -- the first time since January -- while longer-term municipals have posted declines, according to Bloomberg Barclays indexes. McAllister said he anticipates stronger performance going forward.

"I think that for the second half of the year, we’re going to be seeing more positive returns across the entire curve -- not just on the front end of the curve," said McAllister.

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Staying short has paid off for municipal-bond investors.Municipal bonds maturing in one to two years have outperformed every other maturity group in the $3.8 trillion municipal-bond market, with a 1.08 percent return, according to Bloomberg Barclays indexes. Short-term...
short, term, municipal, debt, bond, market, rout
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2018-34-20
Friday, 20 July 2018 08:34 AM
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