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  • Jonathan Poyer

Muni Investing - Even if Rates Stay Neutral, Muni Coupons Have Positive Yields. Attractive Indeed

For municipal bond investors, do returns come from capital appreciation or income????

We wrote previously about the hidden-value of muni investing over treasuries (The Hidden Value of Municipal Bonds - Munis or Treasuries??? (

According to analysis from our friends at SWBC, income accounted for 78% of the return for Municipal bonds over the last 20 years. Considering interest rates were so low for the majority of that time frame, we would expect income to be a bigger part of return going forward now that interest rates are significantly higher.

Based on a SWBC internal benchmark of 39 funds which includes pure high yield funds and investment grade funds, the average yield broken down by strategy looks like the following:

Long term Muni funds 3.77%

Intermediate Muni funds 3.11%

High yield funds 4.85%

In regard to the performance question

Year to date:




Digging deeper, SWBC considered a total return analysis for Muni bonds over a 1-year period given various interest rate moves:

A 150bps increase in rates would mean a -11.86% total return move for muni bonds

On the other hand, a -150bps move would mean a +16.94% increase in total return for munis.

Thus, we are cheering for a rate decrease. And even if rates stay the same, we should see a +5% return for muni bonds

The point is that rates have risen so far that they would have to go significantly higher to produce a negative return from this point.

Munis are starting to look pretty attractive.

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