Current Developments and Current Yields

DECEMBER 05, 2022

Municipal Bond Investor Weekly

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

CAMILLE HERNANDEZ THE WEEK AHEAD

Director Fixed Income Private Wealth

1.

The Muni curve remains upward sloping even with an inverted US Treasury curve --- opportunity for investors buying longer maturities

DREW O'NEIL

Director Fixed Income Strategy

2. Demand for municipal bonds remains strong as yields are more than double what they were at the beginning of 2022, although lower today vs. last month.

3. Good News: New issue supply picks up this week with $5.9 billion expected to come to market, however supply will likely drop dramatically next week and into year end.

MONDAY'S COMMENTARY Investors Find High Value in Municipal Bonds

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THE NUMBERS THIS WEEK

Last week, the trend was lower yields across the fixed income landscape. Treasuries rallied as yields fell by 7 to 18 basis points. Larger moves were seen on the intermediate and longer parts of the curve, as the 1-year Treasury fell by 7 basis points compared to drops of 17 and 18 basis points at 10 and 30 years, respectively. The benchmark AAA municipal curve rallied as well, with yields falling by 11 to 19 basis points across the curve.

Municipal Municipal Municipal Municipal Muni Muni TEY*

Year

Treasury (AAA)

(A)

TEY* (AAA)

TEY* (A)

(AAA)/Tsy Ratio

(AAA)/Tsy Ratio

1 2023 4.69 2.45 2.79 4.14 4.71 52% 88%

2 2024 4.28 2.49 2.84 4.20 4.79 58% 98%

5 2027 3.67 2.53 2.98 4.28 5.04 69% 117%

10 2032 3.51 2.64 3.25 4.47 5.49 75% 127%

20 2042 3.79 3.21 3.94 5.42 6.66 85% 143%

30 2052 3.56 3.46 4.23 5.84 7.14 97% 164%

*Taxable equivalent yield @ 40.8% tax rate

Traditional ladder strategies (table on right) highlight opportunities along the curve, based on maturities. Duration focused strategies can extract additional yield available with longer maturities, while potentially mitigating risk with shorter calls. Yield curve (upper right) highlights taxable equivalent yields.

9.00 8.00 7.00 6.00 5.00 4.00 3.00 2.00 1.00 0.00

1

5.04

5.49

4.28 3.67

4.47 3.51

7.14

5.84 3.56

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

AAA Municipal TEY

A Muni GO TEY

Treasury

Maturity Range Avg. Maturity Duration Yield to Worst

1 to 5

3.0

2.77

2.64%

5 to 10

7.5

6.32

2.80%

10 to 20

15.0

7.98

3.31%

*Taxable equivalent yield @ 40.8% tax rate. Assumes a 10-year call.

TEY* 4.45% 4.73% 5.60%

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MUNICIPAL BOND INVESTOR WEEKLY

INVESTORS FIND HIGH VALUE IN MUNICIPAL BONDS As December begins, municipal bond yields have fallen a little, but most investors will still find high relative value in municipal bonds. Short benchmark muni yields are just below 2.50% and 30-year yields are at ~3.46% yield to call and ~4.48% yield to maturity. That means a very short-term investor might find higher relative value in Treasuries or brokered CDs but those investing 3 years or longer could find better value with municipals. Below is a graph that highlights the treasury curve to various muni yield curves. The Treasury curve is in red and is compared with the 5% coupon benchmark muni yield curve in dashed blue. The Treasury curve has an odd shape that is downward sloping on the front end and then flattens while the muni curve has a traditional upward slope with the steepest part of the curve from 11 to 19 years. The muni to Treasury ratio is below 60% on the shortest bonds (low relative value) and is almost 100% at 30 years (high relative value).

The solid curves are the taxable equivalent yield curves for investors in the top federal bracket. The solid dark blue line is the 5% coupon taxable equivalent yield curve that illustrates high relative value for municipal bond investors. Some might also consider other structures to find additional yield. For instance, an investor may pick up ~55-60 basis points by investing in 4% coupon bonds or ~96 basis points by investing in `A' rated credits (taxable equivalent yield pickup). Intermediate to longer municipal bond yields are very attractive compared to their historical averages. Yields on 30year maturities are more than double where they started 2022 having increased from 1.50% to 3.46%. Yields on 30-year maturities have rarely been higher than they are today, just 10% of the time since 2012. Investors --especially long term investors --- should not miss this opportunity!!

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MUNICIPAL BOND INVESTOR WEEKLY

Fed Funds A lot of uncertainty remains about interest rates. The Fed has already increased Fed Fund rates 375 basis points this year from 0.25% to 4.00% and the market expects the Fed to tighten another 50 basis points this month to bring the target rate to 4.50% (upper bound) at year-end 2022. Looking to 2023, the market expects Fed Funds to peak at 5.0% before ending 2023 at 4.50%. Trading Volume There has been an enormous amount of activity in the muni market this year. Mutual fund outflows have totaled ~$110 billion cumulatively, providing an opportunity for individual bond buyers, and it seems individuals have stepped up. The MSRB reported that trading volume reached a record 1.29 million last month. November was the seventh month of the last eight with trades surpassing 1 million, compared to only eight months in the last 15 years with 1 million or more trades. If the US economy weakens as we head into a recession, municipal credit may weaken as well. The majority of municipal bonds are rated in the AA category or higher. If you own A or BBB rated bonds, now may be time to invest in stronger credits. Stronger credits will likely have more stability compared with weaker credits/sectors should the US enter a recession. State and local governments benefited from federal support in response to the economic disruption caused by the pandemic; many now have reserves that exceed pre-pandemic levels. Property taxes and sales tax revenues have also been strong. Most local governments have sensible fiscal practices including strong rainy day funds or similar funds that leave them well positioned. However, if the US has a severe downturn, municipalities will need to adjust. And as we've always noted, a downgrade in a credit rating is not a default. Rated municipal bonds have historical default rates of less than 1/10 of 1% (Moody's). Munis offer a lot of relative value, you just have to look in the right places. There are currently over 166 bonds in Raymond James' inventory this Monday morning with a tax-exempt yield to worst of 3% or higher and TEYs of 5% or higher. Our team of fixed-income professionals can work with your financial advisor to identify what buying opportunities are available to lock in yield and help you achieve your investment needs and objectives. NAVIGATING TODAY'S MARKET According to The Bond Buyer, $5.9 billion in new issuance is expected this week. Some of the larger deals include: The New York City Housing Development Corporation (Aa2/AA+) is selling $649 million of multi-family housing revenue bonds; the California Community Choice Financing Authority (A2/-) is issuing $452 million of green Clean Energy Project revenue bonds; the Los Angeles Department of Water and Power (Aa2/AA+/AA) is selling $400 million of water system revenue bonds; the Illinois Finance Authority (-/AA-/AA-) is bringing a $375 million deal to market for UChicago Medicine; and Ohio (Aa1/AA+/AAA) is issuing $306 million of general obligation bonds. See table below for additional new issuance.

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MUNICIPAL BOND INVESTOR WEEKLY

HISTORICAL YIELDS

4.50 4.00 3.50 3.00 2.50 2.00 1.50 1.00 0.50 0.00

Municipal AAA 10-Year

Municipal AAA 2-Year

Fed Funds (Upper Bound)

Date Amount

Issuer

12/5 12/5 12/5 12/5 12/6 12/6 12/6 12/6 12/6 12/6 12/6 12/6 12/7 12/8 12/8 12/8 12/8

$141MM New York City Housing $354MM New York City Housing

$20MM City of Levelland $104MM California Infrastructure & Econ

$2MM Quitman County School District $51MM Monmouth County Improvement $53MM Monmouth County Improvement $21MM Massachusetts Housing Finance $27MM Massachusetts Housing Finance $51MM Massachusetts Housing Finance

$5MM Louisiana Housing Corporation $35MM Louisiana Housing Corporation $10MM School District of the City of

$9MM Parishwide School District of $8MM Paradise USD (Butte County) $31MM Massachusetts Housing Finance $89MM Alaska Housing Finance

ST

Description

Moody's/S&P/Fitch

NY Multi-Family Housing Revenue Bonds

Aa2 /AA+ /

NY Multi-Family Housing Revenue Bonds

Aa2 /AA+ /NR

TX Taxable, Tax and Waterworks and Sewer /AA / ( /A+ / ) AGM

CA Infrastructure State Revolving Fund

/AAA /AAA

GA General Obligation Bonds, Series 2022 Aa1 / / (Baa1 / / )

NJ Governmental Pooled Loan Revenue

Aaa /AAA /AAA

NJ Governmental Pooled Loan Revenue

Aaa /AAA /AAA

MA Housing Bonds, 2022 Series D (Non-Amt) Aa2 /AA /

MA Housing Bonds, 2022 Series D (Non-AMT) Aa2 /AA /

MA Housing Bonds, 2022 Series D (Non-Amt) Aa2 /AA /

LA Single Family Mortgage Revenue Bonds Aaa / /

LA Single Family Mortgage Revenue Bonds Aaa / /

PA Lackawanna County, Pennsylvania,

A1 /NR /NR

LA General Obligation School Bonds, Series /AA / ( /A+ / ) BAM

CA General Obligation Bonds, Election of

/A- /

MA Single Family Housing Notes, Series 2022 Aa1 /AA+ /

AK General Mortgage Revenue Bonds II 2022

Maturity

11/01/202711/1/2062 08/15/2023-42 10/01/2026-42,47,52 2/1/29-33 12/1/23-42 8/15/23-42 06/01/20266/1/2066 12/01/2026-27 06/01/2024-30,53 12/01/203012/1/23-40 03/01/2024-42 08/01/202312/1/2023

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 .

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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.

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.

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M21-3985225 through 12/15/2023

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