Municipal Bond Investor Weekly

SEPTEMBER 30, 2024

Municipal Bond Investor Weekly

High Net Worth Wealth Solutions and Market Strategies // Fixed Income Solutions

TED RUDDOCK

THE WEEK AHEAD

Managing Director Fixed Income Private Wealth

1.

With the start of October comes multiple economic updates including the all-important September jobs report on Friday. We'll be closely watching --

- but won't be surprised by some noise in the numbers which could unsettle

markets. Next FOMC meeting is the day after the national election.

DREW O'NEIL

Director Fixed Income Strategy

2. Muni supply continues with another strong ~$10 billion week ahead to continue 2024's new issue surge. Strong demand to date has kept yields in a very narrow range. Will it continue? See today's commentary.

3. Illustrative portfolios remain effectively unchanged this week (see below).

MONDAY'S COMMENTARY Three Down, One To Go... Illustrative Portfolios

Page 2 Page 2

THE NUMBERS THIS WEEK

Yields did not move substantially last week. Treasury yields were 1-2 basis points lower on the short end and 2-3 basis points higher on the intermediate and long part of the curve. Municipal yields were mostly unchanged except for the 1year yield which moved ~6 basis points higher for the week. The rest of the curve finished within a basis point of where it started.

Year

Treasury

Municipal (AAA)

Municipal (A)

Municipal TEY* (AAA)

Municipal TEY* (A)

Muni (AAA)/Tsy

Ratio

1 2025 3.90 2.49 2.80 4.21 4.72

64%

2 2026 3.55 2.37 2.68 4.00 4.53

67%

5 2029 3.50 2.35 2.71 3.97 4.57

67%

10 2034 3.75 2.61 3.01 4.41 5.08

70%

20 2044 4.15 3.22 3.66 5.44 6.18

78%

30 2054 4.10 3.49 3.92 5.90 6.62

85%

*Taxable equivalent yield @ 40.8% tax rate

Muni TEY* (AAA)/Tsy

Ratio

108% 113% 113% 118% 131% 144%

8.00 6.62

7.00

6.00 5.00 4.00 3.00

5.08 4.57

3.97

4.41

3.75 3.50

5.90 4.10

2.00 1

3 5 7 9 11 13 15 17 19 21 23 25 27 29

AAA Municipal TEY

A Muni GO TEY

Treasury

1

MUNICIPAL BOND INVESTOR WEEKLY

THREE DOWN, ONE TO GO

As September comes to a close --- completing the first three quarters of 2024, and we head into the final turn toward year end, we thought it might helpful to recall our thoughts from our Annual Outlook in January. It's been an interesting year to say the least!

Well, there aren't many (any?) "experts" who think the 10-year Treasury will end the year at or anywhere near 3.00%. (The lowest estimate among nearly 60 economists is 3.20% --- Raymond James's CIO has the year end at 4.0%) We are ending the 3rd quarter at ~3.75% --- just about 15 basis points below the start of the year. That said, we saw the 10-year Treasury pop over 4.50% briefly during April and May before moving steadily lower, as the market anxiously awaited the Fed's first rate cut, which finally came in September.

In munis, it's been quite a different story year-to-date as interest rates at the 10-year mark have moved ~35 basis points higher (~2.25% to 2.60%.) Thus, despite the market gyrations throughout the year, we finish the first three quarters with muni valuations "cheaper" relative to Treasuries. The 10-year yield ratio started the year at ~60% --- now we're at 70%. Our expectation, given the strongest new issue supply year to date, and likelihood of this continuing through October, was to see muni yields continue to drift higher, even as Treasuries were likely to move lower, creating a more favorable entry point for municipal bond investors. That additional "sell-off" for munis has yet to materialize, but October can be a month of surprises! Recall last year: rates plummeted more than 100 basis points from roughly October 20 thru year end. While we're not forecasting that type of move, markets have a way of surprising us and with a contentious national election between now and year end, well, fasten your seat belts.

We continue our drumbeat: do not miss the current market opportunities. Municipal bonds, while below their highs of earlier this year, and this cycle's high in October 2023, remain well above their average yields over the last decade. But they are not likely to remain in this territory much longer. As we demonstrate in our illustrative portfolios (below), investors can still achieve tax-exempt yields near 4% (depending on structure) and for investors in the top tax brackets, that's a 6.75% taxable equivalent yield --- higher in states with state / local income taxes. There's just over 90 days until 2025. Have a conversation with your financial advisor today!

ILLUSTRATIVE PORTFOLIOS

Note: With municipal yields little changed this week, the portfolio illustrations remain unchanged from September 23. Our illustrative proposals reflect three opportunities along the yield curve with bonds maturing from 1 to 30 years. Last week municipal yields were basically unchanged across the curve vs. the 10- & 30-year Treasury yields closing up 10 basis points. Strategically, our 10?20-year maturity illustration continues to offer an excellent tax efficient solution. Looking to maximize yield? The 20 ? 30-year range continues to offer an additional 60+ basis points (over 10 ? 20 years) and may be appropriate for some investors. The yield to worst is ~3.92%, which equates to a taxable equivalent yield to worst of ~6.61% for an investor in the top federal tax bracket and subject to the net investment income tax. If the callable bonds are not called, the yield to maturity increases to ~4.18%, which equates to a taxable equivalent yield to maturity of ~7.06%. This option has an average coupon around 4.31% and a market price of ~$ 102.07. The current yield is ~4.22%. An investment with $1 million par value (~$1.032 million market value with accrued interest) will generate a federally tax-exempt annual coupon cash flow of ~$43,125.

2

MUNICIPAL BOND INVESTOR WEEKLY

NAVIGATING TODAY'S MARKET

Just over $10 billion in new issuance is expected to come to market this week according to The Bond Buyer. Some of the larger deals include: the Dormitory Authority of the State of New York (A3/A-/A-) is selling $1.03 billion of bonds for Northwell Health Obligated Group; the California Community Choice Financing Authority (A2/-) is issuing $995 million of clean energy project revenue bonds; the Commonwealth of Kentucky State Property and Buildings Commission (Aa3/-/AA-) is bringing a $600 million Project No. 131 revenue bond deal to market; Massachusetts (Aa1/AAA) is selling $491 million of transportation revenue bonds; the Ohio Water Development Authority (Aaa/AAA) is issuing $400 million of water pollution control loan fund green revenue bonds; and the Michigan State Housing Development Authority (Aa2/AA+) is selling $300 million of single-family non-AMT mortgage revenue bonds. See table below for additional new issuance.

HISTORICAL YIELDS

6.00

5.00

4.00

3.00

2.00

1.00

0.00

Municipal AAA 10-Year

Municipal AAA 2-Year

Fed Funds (Upper Bound)

3

MUNICIPAL BOND INVESTOR WEEKLY

Date Amount

Issuer

10/01 10/01 10/01 10/02 10/02 10/02 10/02 10/02 10/03 10/03 10/03 10/03

$54MM Hinds County $233MM Tampa

$15MM Plainfield BOE $25MM San Lorenzo Valley USD $12MM Cook County School District #102 $300MM Michigan State Housing $18MM Moraga ESD $145MM Michigan State Housing $33MM Bellfonte Area SD

$1MM Bellfonte Area SD $3MM Bellfonte Area SD $46MM Montana State Board of Housing

ST

Description

Moody's/S&P/Fitch

MS Hinds County, Mississippi

--/AA/--

FL CITY OF TAMPA, FLORIDA

Aaa/AAA/AAA

NJ The Board of Education of the City of

NR/AA/NR

CA General Obligation Bonds, Election of

Aa1/--/--

IL School District Number 102

--/AA-/--

MI 2024 SERIES D (NON-AMT)(SOCIAL

Aa2/AA+/--

CA General Obligation Bonds Election of

--/AA+/--

MI 2024 SERIES E (FEDERALLY TAXABLE) Aa2/AA+/--

PA General Obligation Notes, Series A of 2024 Aa3/NR/NR

PA General Obligation Notes, Series B of

Aa3/NR/NR

PA General Obligation Bonds, Series C of

Aa3/NR/NR

MT 2024 SERIES B (NON-AMT)

Aa1/AA+/--

Maturity

2054 - 2054 2025 - 2054 2025 - 2045 2030 - 2054 2026 - 2039 2025 - 2055 2025 - 2054 2025 - 2055 2025 - 2048 2026 - 2031 2027 - 2034 2025 - 2055

This offering calendar is for information purposes only, and is not intended as an offer for solicitation with respect to the purchase or sale of any securities. For more information on the new issues go to .

4

MUNICIPAL BOND INVESTOR WEEKLY

There is no assurance any of the trends mentioned will continue or forecasts will occur. Investing involves risk and investors may incur a profit or a loss. Past performance may not be indicative of future results. Prior to transacting in any security, please discuss the suitability, potential returns, and associated risks of the transaction(s) with your Raymond James Financial Advisor. This communication is not an offer to sell or a solicitation to buy any securities mentioned herein. High grade and High yield securities mentioned herein may not be suitable for all investors. A credit rating of a security is not a recommendation to buy, sell or hold securities and may be subject to review, revisions, suspension, reduction or withdrawal at any time by the assigning rating agency. All expressions of opinion reflect the judgment of the Fixed Income Municipal Department of Raymond James & Associates (RJA) at the time of publication and may be subject to change without notice. Information has been obtained from sources considered reliable, but we do not guarantee that the foregoing report is accurate or complete. Other departments of RJA or its affiliates may have information that is not available to the Fixed Income Municipal Department about companies or Issuers mentioned in this report. Further information on the securities mentioned herein is available upon request. Interest on Municipal Bonds is generally exempt from federal taxation and may also be free of state and local taxes for investors residing in the state and/or locality where the bonds were issued. However, bonds may be subject to federal alternative minimum tax (AMT), and profits and losses on tax-exempt bonds may be subject to capital gains tax treatment. Bonds are subject to risk factors including: 1) Default Risk - the risk that the issuer of the bond might default on its obligation 2) Rating Downgrade - the risk that a rating agency lowers a debt issuer's bond rating 3) Reinvestment Risk - the risk that a bond might mature when interest rates fall, forcing the investor to accept lower rates of interest (this includes the risk of early redemption when a company calls its bonds before maturity) 4) Interest Rate Risk - this is the risk that bond prices tend to fall as interest rates rise. 5) Liquidity Risk the risk that a creditor may not be able to liquidate the bond before maturity. High-yield bonds are not suitable for all investors. The risk of default may increase due to changes in the issuer's credit quality. Price changes may occur due to changes in interest rates and the liquidity of the bond. When appropriate, these bonds should only comprise a modest portion of a portfolio.

Sourced from Bloomberg: Treasuries: US Fed H15 CMT Curve - The H15 curve is comprised of the constant maturity treasury rates as published daily by the Federal Reserve in the H15 report. Municipal (AAA): BVAL Municipal AAA Yield Curve (Callable) - The curve is populated with high quality US municipal bonds with an average rating of AAA from Moody's and S&P. The yield curve is built using non-parametric fit of market data obtained from the Municipal Securities Rulemaking Board, new issues, and other proprietary contributed prices. The curve represents 5% couponing. The 3 month to 10 year points are bullet yields, and the 11 year to 30 year points are yields to worst for a 10-year call. Municipal (AA): US General Obligation AA Muni BVAL Yield Curve - The BVAL curve is populated with pricing from uninsured AA General Obligation bonds. Municipal (A): US General Obligation A+ A A- Muni BVAL Yield Curve - The BVAL curve is populated with pricing from uninsured A+, A, and Arated General Obligation bonds. Fed Funds (Upper Bound): The federal funds rate is the short-term interest rate targeted by the Federal Reserve's Federal Open Market Committee as part of its monetary policy. US Treasury securities are guaranteed by the US government and, if held to maturity, generally offer a fixed rate of return and guaranteed principal value. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance.

The illustrative portfolios are intended as a starting point for a conversation on individual bonds. They are not intended as specific recommendations and bonds are shown for illustration purposes only. The bonds listed in the illustrative portfolios are rated A or better, with average ratings from Moody's and Standard and Poor's of Aa2 / AA. The yields shown in the proposals are based on pricing models, not current market offers. Yields shown are indicative of general market levels but are not a guaranteed result. Prices and yields are not inclusive of any fees or commissions.

US Treasury securities are guaranteed by the US government and, if held to maturity, generally offer a fixed rate of return and guaranteed principal value. The Dow Jones Industrial Average (DJIA) is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange (NYSE) and the NASDAQ. The NASDAQ Composite is a stock market index of the common stocks and similar securities listed on the NASDAQ stock market. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance.

Investment products are: not deposits, not FDIC/NCUA insured, not insured by any government agency, not bank guaranteed, subject to risk and may lose value.

INTERNATIONAL HEADQUARTERS: THE RAYMOND JAMES FINANCIAL CENTER 880 CARILLON PARKWAY // ST. PETERSBURG, FL 33716 // 800.248.8863 //

? 2024 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. ? 2024 Raymond James Financial Services, Inc., member FINRA/SIPC. All rights reserved.

Raymond James? is a registered trademark of Raymond James Financial, Inc.

M23-184726 through 4/28/26

.

5

 ................
................

In order to avoid copyright disputes, this page is only a partial summary.

Google Online Preview   Download