Muni Update: Low Rates Don’t Have to Mean Low return

by Pat Luby

Low interest rates do not necessarily mean low returns.

For example, through the 12-months ended March 31, Barclays calculated a 6.62% total return for their municipal bond index—that’s more than 2 1/2% higher than the 4.00% average yield on the Bond Buyer 20-year index as reported for a similar period by the Federal Reserve. **

Year to date, some highlights:

  • Barclays Agg    1.61%
  • Barclays Muni    1.01%
  • Barclays US Treasury 20+ year    4.19%

While buy and hold bond investors have a good indication of what they will earn over the lifetime of their investment (based on their purchase yield and the coupon rate on their bonds), there can be opportunities to capture gains. Taking advantage of those opportunities when they present themselves means that some bond market investors may be able to earn a total rate of return that is higher than prevailing interest rates.  (Don’t forget–past performance is interesting, but not necessarily an indicator of future results.)

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