Going, Going, …

It is early in the baseball season, but the extreme optimism generally associated with Opening Day Baseball continues to be reflected in the financial markets. This is not especially new for the stock market, where elevated valuations have existed for so long that many investors appear accustomed to them.

Optimism has continued in bonds as well. March, one of the worst months for municipal bonds in recent years, was followed by a solid rebound in April. Demand for tax-exempt bonds has remained strong despite t continued issuance.

That has not necessarily been the case for US treasury securities. It is the bellwether bonds of the US treasury that are trying to cast a pall over the party. Today the ten-year treasury yield closed at 4.46%, a level not seen since last July. Similarly, the two-year treasury yield closed at 3.99%, a level not seen since last June. This has occurred despite the three Federal Reserve quarter rate cuts in September, October, and December of last year.

Many fixed income investors view higher yields as an attractive entry point. Their argument is that, for the better part of three years, the ten-year treasury yield has generally traded within a range of approximately 4% to 4.5% for the ten-year treasury. Therefore, all is normal, and at 4.46%.. From that perspective, current levels may appear consistent with the broader range that markets have experienced in recent years.

Taking the broader view, we have watched the ten-year Treasury yield move from .31% in March 2020 to 5.02% on October 23, 2023. After such a dramatic move higher, one might have expected interest rates to pull back over the following two or three years. Somehow 3.60% on September 17, 2024, just does not seem to be inspiring. Over the past year the ten-year Treasury yield tried to move to lower territory: 3.85% on April 4, 2025, 3.93% on October 17th, and 3.92% just a few weeks ago on March 2nd. Here we are at 4.46%…three strikes you’re out!?

There are tens of trillions of dollars invested in fixed income markets. Market trends and interest rate movements can have a meaningful impact on bond performance, particularly during periods of rising yields. Treasury returns over the past five years were negative at -1.30% per Bloomberg Treasury Index. Your coupons delivered some return, totaling 11.48%, but your price declined 13.29%. Just think about that. Over five years this is the math that is affecting fixed income investors.

Bond math is important. Especially when the wind is blowing in your face as the trend for interest rates is higher. Make sure you have a handle on where your money is and how it should work for you, not against you. If you would like to review your portfolio positioning or discuss current market conditions, please feel free to contact me.

New Braunfels TX Utility System Revenue and Refunding Bonds Series 2026

Aa1 Moody Underlying

Due 7/1 Dated 5/15/26 Maturity 7/1/59

$295,795,000 Sold

Years Maturity Coupon Yield*

1 2027 5.00% 2.70%

2 2028 5.00% 2.66%

3 2029 5.00% 2.73%

4 2030 5.00% 2.79%

5 2031 5.00% 2.89%

6 2032 5.00% 2.98%

7 2033 5.00% 3.05%

8 2034 5.00% 3.12%

9 2035 5.00% 3.20%

10 2036 5.00% 3.30%

11 2037** 5.00% 3.36%

12 2038** 5.00% 3.46%

13 2039** 5.00% 3.57%

14 2040** 5.00% 3.61%

15 2041** 5.00% 3.69%

16 2042** 5.00% 3.78%

17 2043** 5.00% 3.88%

18 2044** 5.00% 4.00%

19 2045** 5.00% 4.12%

20 2046** 5.00% 4.25%

21 2047** 5.00% 4.37%

22 2048** 5.00% 4.47%

23 2049** 5.00% 4.52%

26 2052** 5.00% 4.65%

30 2056** 4.50% 4.87%

33 2059** 5.25% 4.71%

*Yield to Worst (Call or Maturity) **Callable 7/1/36

Source: Bloomberg

This is an example of a new issue priced the week of 5/11/26. Provided for illustrative purposes only and is not a recommendation to buy or sell any specific investment.

This commentary is for informational purposes only and does not constitute investment advice or a recommendation to buy or sell any security. Past performance is not indicative of future results. All investments involve risk, including the possible loss of principal. Prices, yields and availability are subject to change. Investment return and principal value of fixed income securities may fluctuate, and bond prices are subject to interest rate risk, credit risk, and liquidity risk. Index data is provided for illustrative purposes only.