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Strange Days Indeed: Historic Bond Market and Why

I have been in the “brokerage” business since 1966 and trading municipal bonds since 1976. I have traded bonds at both the highest yields and lowest yields in history, the lowest being now. During all of those years I’ve followed a few personal rules and although I always have to “trade” and invest in bonds, in all markets, I always do the most good in bad markets. I try to find the best yields in times of both crisis and bad headline news.

Volatility is the key to finding value. Of course credit quality always must be maintained no matter a calm market or choppy seas, and we can never depart from that. Yesterday’s bond market is segmented, fragmented, and demented. Treasury yields hit their lowest in history with the ten-year Treasury note falling to 0.60% (1.12% at 09:45: March 19,2020) while municipal bonds went illiquid on Thursday, March 12, 2020, and even though the municipal market has slowly been clawing its way back, the bid is still without support and down significantly since February and before. The right municipal bond at the right price has to deserve some TLC.

High yield muni and corporate bonds are at historic wide spreads to Treasuries and investment grade bonds and indices, keeping in mind that corporations are rated BBB on average, and I wouldn’t recommend them right now. I don’t think we’ve seen the bottom yet.

Muni Mutual Funds and their Net Asset Values (share prices) have fallen. Muni Mutual Funds have an ease of entry and exit and are maybe the second bond segment to suffer outflows in a bad market. Muni Mutual Funds just came off something like 62 straight weeks of inflows and are now suffering outflows, so the share prices are down. Muni ETFs are the first muni market to be tested in a bad market, one of crisis.

I’m not sure I should use the word “tested”, that would suggest some semblance of order and it’s more like a Lemming stampede. Look at any share price graph on a muni ETF and obvious outcome becomes obvious now. The muni ETF market was last tested in 2008 with about the same results. One muni fund manager likened ETFs to the devil in this market.

DISCLAIMER: Past performance does not predict future results. This report is based on data obtained from sources we believe to be reliable. Hefren-Tillotson does not, nor any other party, guarantee the accuracy or completeness of this report or make any warranties regarding results obtained from its usage. All opinions and estimates included in this report constitute the firms judgment as of the date of this report and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation to buy or sell the securities herein mentioned.

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