Manic Market?

I have been tempted through the years to write my letter as “just like last month.” It certainly could apply this month. Treasury bond prices, as well as stock prices, are on a tear. Municipal and corporate bonds are right there with them. Everyone, it seems, has moved to one side of the boat.

This is the time of year for the pundits. Review 2023, predict 2024, we were right, they were wrong…it is an annual event. It is also a time to revisit perspective.

Over the past six months, longer-term interest rates, such as the ten-year US treasury note, rose from 3.85% on July 3^rd to 5.02% on October 23^rd and now back to 3.85% today, December 29^th (all prices and yields per Bloomberg). For a price perspective, the newest ten-year US treasury note for the period, the 3.375% of May 15^th, 2033, sold at 96, 88 and now back to 96 over the same six-month timeframe. These are nice juicy moves for traders, but who is a trader?

Your portfolio of municipals from The Select Approach^TM did not see volatility anywhere near that. Look at your statements. What has changed is the yield on new municipals, like the Port Aransas, TX general obligations below. All yields inside seven years had a two handle! Those yields are all lower than the yields on Comal ISD, TX from the July 6^th letter. Mania in municipals!

Do not worry, I do not expect to be calling you with two handle yields anytime soon. I hope you appreciate the perspective, both in the bonds you own and the bonds I do call you with.

Excitement, optimism, fear of missing out, these all come with the territory. These are markets! Which also means that volatility, despite your experience in investing, may visit other parts of your portfolio with devastating results. Stocks and bonds are markets, not one-way money machines.

Progress is made by taking two steps forward and one step back. With bonds we can look at progress either way: for decades bond prices made progress, now bond yields are making progress. Bond yields are going up. The trend for bond yields is two steps forward and one step back. This also means that progress is towards higher yields (and lower prices).

This trend in bonds is important to keep in mind because it governs our approach. While we are not traders, opportunities may arise that call for us to sell one bond for another. This is because we are not in control of what other people sell (or why) but I work every day to find worthwhile bonds and today might be the day.

The Select Approach^TM offers an opportunity to build a portfolio of worthwhile bonds as both the store of wealth and a means of having compound interest work in your favor. Staying out of trouble can be every bit as important as finding opportunities and in the world of municipal bonds they can also be the same thing.

I hope you found the holiday season meaningful. Have a Happy New Year!

Port Aransas, TX

General Obligation Tax Notes, Series 2024

AA+ S&P Under

Due 3/1   Dated 1/17/24 Maturity 3/1/30

$13,140,000 Sold

Years   Maturity       Coupon        Yield*

1         2024             5.00%           2.90%

2         2025             5.00%           2.72%

3         2026             5.00%           2.62%

4         2027             5.00%           2.52%

5         2028             5.00%           2.47%

6         2029             5.00%           2.46%

7         2030             5.00%           2.48%

*Yield to Worst (Call or Maturity) **Non-Callable

Source: Bloomberg

This is an example of a new issue priced the week of 12/19/23

Prices, yields and availability subject to change