• Muni Nation

    Value In Plain Sight

    Jim Colby, Portfolio Manager
    June 20, 2012

    The secondary market for municipal bonds has been somewhat subdued the past several days. The broad market successfully absorbed over $10 billion in new issues last week, with some selling of high-grade muni bonds in the secondary market, possibly to fund purchases or restructure segments of existing portfolios. Municipal bond yields have been moving slightly lower but have generally underperformed U.S. Treasuries, which I believe makes their relative valuations look all the more appealing to non-traditional managers looking for potential trading opportunities.

    The table below shows the ratios of AAA municipal bonds to U.S. Treasuries as of 6/14/2012, based on the Municipal Market Data (MMD scale).1 With nominal yields of municipals currently well above those of U.S. Treasuries, in my opinion this suggests that municipal bonds must be in the discussion as an attractive near-term choice for inclusion in portfolio allocation models. I currently see value in the 7 to 15 year maturity range, accessible through the VanEck Vectors Intermediate Municipal Index ETF (NYSE Arca: ITM).


    MMD Ratio to Treasuries (%)

    1 Year


    2 Year


    5 Year


    7 Year


    10 Year


    15 Year


    20 Year


    25 Year


    30 Year


    Source: Municipal Market Data as of 6/14/2012

    1In the municipal bond market, the accepted measure for the risk-free rate is the triple-A scale published by Municipal Market Data every day at 3:00 PM (commonly referred to as the MMD scale).




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