Muni Catchup 6/1
by Pat Luby
Hello Again! Time for a quick Catchup on Performance
May demonstrated what I have said many times, that “low rates do not have to mean low returns.”
As you can see in the Performance Table, below, while most muni bond sectors had positive total returns in May, particularly strong results were shown by the “aggressive” sectors: high yield, tobacco and Puerto Rico. Worth paying attention too is the outperformance of the Revenue Bond Index versus the State G.O. Index.
In the red for the month–as with Treasuries–was the intermediate portion of the muni yield curve, where yields have been ticking higher as the market adjusts to the increasing likelihood of a June rate hike by the Fed. As I wrote for yesterday’s Catchup:
With the FOMC now widely expected to hike the Fed Funds rate at their meeting on June 14 & 15, shouldn’t all rates be moving higher? Well no, not necessarily. Because the Fed Funds rate is an overnight lending rate, it has the greatest influence on the short end of the yield curve. Since long-term investors know that the Fed Funds rate will fluctuate over the holding period of a long-term bond, longer-duration rates tend to react more to inflation expectations than to fluctuations in the Fed Funds rate.
As shown by the recent negative returns, the speculative sectors can taketh away as quickly as they giveth. Investors tempted by the recent strong performance in these parts of the market should strongly consider full-time professional management, at least for that part of their muni bond allocation. A muni portfolio does not need to be all bonds or all funds…it can be a mix and match of bonds, funds, ETFs, CEFs and SMAs. To be prudent, high yield risk needs not only broad diversification but also full-time supervision. If you need convincing, please read my article explaining The Benefits of Professional Management.
Returns shown below are not annualized. Links to the source web pages for the indices are available on my Links of Note page.
The next regular Muni Catchup is scheduled for Monday, June 6, but look for one more special update this week. If you are not already subscribed, be sure to sign up to be notified by email when it gets published.
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Thanks for reading,