Muni Monday Catchup

by PL


IMG_5209The Yield Curve

How far is too far? How short is too short? Should you go shorter to reduce interest rate risk? Should you go longer to get a positive real return (yield minus inflation rate = real return)? How can you decide without spending so much time that you’ll be late for your tee time?

Investors often draw an artificial line, and decide not to go past that line. That is one reason why there is often an extra bump-up in yield for going slightly longer than 10-years–because a lot of demand gets crowded into the 10-year maturity, there can be less demand and more supply by going just a little longer. I have always paid attention to what percentage of the yield curve is captured by specific spots on the curve. Right now, it looks like this:

  • 60% 14-years
  • 70% 16-years
  • 80% 19-years
  • 90% 23-years

This doesn’t mean you should focus on one of these spots, but it can be a helpful point to keep in mind as you balance risk and return.

The Redemption Wave is Coming

The Summer Redemption Season starts in only a few weeks, and while the expected $100+ billion in redemptions will have an impact on the market, keep in mind that the muni market is not a single homogenous market, but a variety of markets spread across the states and in some cases the sectors as well. So it’s important to keep in mind that the heavy redemption flow starts in a handful of states. Of the $38 billion in redemptions expected for June, about 80% will be in the top 16 states (in billions):

  • NJ   $6.6
  • NY  $5.7
  • CA  $5.6
  • FL  $1.8
  • CO  $1.6
  • PA  $1.4
  • OR  $1.3
  • OH  $1.0

Rounding out the rest of the top 16 with less than $1 billion each will be MA, NC, IL, WA, TX, LA, VA and CT.

Puerto Rico’s Lesson for Muni ETF Investors

It can be hard to find good muni insight as it pertains to ETFs, so I have published a number of articles on The latest came out on Friday. You can check my author page to read my other muni ETF-related articles.

Have a great week!


The opinions expressed and the information contained herein are based on sources believed to be reliable, but accuracy or appropriateness is not guaranteed. Past performance is interesting but is not a guarantee of future results. The author does not provide investment, tax, legal or accounting advice–this is NOT investment advice. Investors should consult with their own advisor and fully understand their own situation when considering changes to their strategy, tactics or individual investments. Investments in bonds are subject to gains/losses based on the level of interest rates, market conditions and credit quality of the issuer. Additional information available upon request.

May 9, 2016.

©2016 Patrick F. Luby. All rights reserved.