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Talk, Talk, Talk

September 3rd, 2026 by Kurt L. Smith

We have not seen this many articles about Bonds in a very long
time. We have a new Federal Reserve, Chairman Kevin Warsh,
and investors want to know what to expect. I suggest you do
something a little more productive, like enjoy a blowout weekend
to celebrate one of the longest unofficial summer seasons in
recent memory.


Bonds are on their way to becoming a four-letter word, but there
is a long, long way to go. Bond salesman, chiefly the new Federal
Reserve chairman, dealer bank chief economists, and anyone
who manages bonds for a living, will tell you now is a great time to
invest in bonds. Shocking!


The experts used to tell us how great an investment in bonds has
been (performance-wise) along with the compliance tagline “past
performance is no guarantee of future results.” Now that
performance figures are, well, lacking, we are told to “look at that
yield!”


Performance is an important metric, which makes investing in a
bond bear market a very difficult proposition. Of course, this
brings up the issue for some as to whether we are in a bear
market or if we are still a bull market. I remember the 1980s when
double digit interest rates peaked and interest rates fell to 7% in
1986, my first year in bonds. Shortly afterwards in 1987 they
climbed again to double digits. Was it still a bear market in
bonds? No! All of this to say it took some investors almost ten
years to finally figure out we were in a bond (and stock) bull
market.


We are already six-plus years into the new bond bear market.
You are fortunate that you invest in municipal bonds because
municipal bonds may provide opportunities in a bond bear market
that US treasury bonds, corporate bonds, and mortgage may not
provide. The reason is diversity; no other market comes close.


Remember “lower for longer?” I believe a former Federal Reserve
Chairman touted that. Was he prepared for inflation that certainly
would result from a surging money supply response to the COVID
pandemic? Talk about lack of credibility. Yes, do something
productive with your time and celebrate the end of summer or
focus on your stock portfolio.


The market will do what the market will do, but in general, the
market can trend. With interest rates moving up from near zero in
2020, a downward correction in rates from 2023 through early
2026, we are now entering the meat of the trend. It is why interest
rates in the thirty-year bellwether treasury hit post-2007 highs in
yield last month and why the two-year treasury note and ten-year
treasury note closed last week within a couple of basis points of
their twelve-month highs, certainly within striking distance of their
own multi-year highs.


Bonds can be a great tool in your portfolio. But if you do not see
maturity dates on your bonds (or bond products) or those dates
seem to be beyond your comprehension, you might want rethink
your bond portfolio. And if your portfolio includes US treasuries,
corporate bonds, or mortgages, you might want to consider what I
believe to be a worthwhile alternative in municipal bonds (both
tax-free and taxable).


Now may be a good time to review your commitment to the
bonds. Performance figures have been poor and the trend
remains challenging. Let’s talk.


Arlington Independent School District, TX
Unlimited Tax School Building Bonds, Series 2026
Aaa Moody (Permanent School Fund Guarantee) Aa1
(Underlying) AAA S&P (PSF) AA Underlying
Due 2/15 Dated 9/15/26 Maturity 2/15/51
$125,000,000 Sold


Years Maturity Coupon Yield*

1 2027 5.00% 2.61%

2 2028 5.00% 2.67%

3 2029 5.00% 2.77%

4 2030 5.00% 2.89%

5 2031 5.00% 3.00%

6 2032 5.00% 3.08%

7 2033 5.00% 3.23%

8 2034 5.00% 3.35%

9 2035 5.00% 3.47%

10 2036 5.00% 3.58%

11 2037** 5.00% 3.72%

12 2038** 5.00% 3.84%

13 2039** 5.00% 3.93%

14 2040** 5.25% 4.02%

15 2041** 5.25% 4.10%

16 2042** 5.25% 4.16%

17 2043** 5.25% 4.21%

18 2044** 5.25% 4.26%

19 2045** 5.00% 4.37%

20 2046** 5.00% 4.44%

21 2047** 5.00% 4.53%

22 2048** 5.00% 4.59%

23 2049** 5.00% 4.63%

24 2050** 5.00% 4.68%

25 2051** 5.00% 4.70%

*Yield to Worst (Call or Maturity) **Callable 2/15/36
Source: Bloomberg
This is an example of a new issue priced the week of 8/24/26.


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 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.

Bond Bear Market Enters Next Phase

August 6th, 2026 by Kurt L. Smith

I have been looking for higher interest rates since my Early Stages letter March 10th along with the follow up Wild Swing letter April 6th. The market has delivered. Across all maturities of U.S. Treasury securities, rates have jumped, bond prices have fallen, and performance figures for treasury investors renewed their downward slide.

Yet despite the rise in treasury yields, I did not believe they indicated the Federal Reserve should or would raise interest rates last week, even a small 25 basis points. So, guess the result? In my view, faced with an opportunity to lead (cut rates) or follow (like decades of Federal Reserve policy before him), new Chairman of the Federal Reserve Kevin Warsh chose to follow.

Traditional wisdom holds that the Federal Reserve can influence short-term rates, but it is the market that determines longer-term rates. At least the traditional wisdom is half right; In my view, the market controls all rates, and the Federal Reserve follows closely so not to lose what credibility it has.

In my opinion, the Federal Reserve’s credibility suffered greatly last week. With inflation running over the Federal Reserve’s target 2% rate for the past five years, treasury investors appear to be demanding more yield to compensate. But even with interest rates on ten-year and thirty-year treasuries trading near or at twenty-year highs, the question of how high inflation can run or how high is high for interest rates remains.

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Wow, Look at The Demand

June 17th, 2026 by Kurt L. Smith

If you have read any stories about the municipal bond market lately, chances are they include the words high demand and capital inflows. Investors love municipal bonds and are sending record amounts of inflows to all things municipal, particularly exchange traded funds.

The trend of higher demand for municipal bonds is not new. Some of these stories reference the best inflows (demand) since 2021 or perhaps the best demand ever. The 2021 reference should be a tell because municipal bond performance since 2021 has generally been challenged by rising interest rates. That year municipal bond yields went from near zero to just better than near zero, not exactly the time to be moving into any bond market.

The trend to watch in municipal bonds, as well as any bond market, is the direction of U.S. Treasury yields. Treasuries are the dog wagging the other bonds (municipals, corporates, and mortgages) tail. The trend for US Treasury yields has been up since 2020 but recency bias during the correction phase of the trend (2023 through early 2026) has been…exciting?

Long-term thirty-year bellwether treasury yields hit a nineteen-year high of 5.20% on May 20 while the two-year treasury note had a sixteen-month high of 4.20%. Throw treasury bill yields into the mix, and the overall picture suggests the market continues to assess the possibility of additional Federal Reserve policy tightening, which historically has created challenges for bond prices.

Indeed, municipal bonds are not treasury bonds, and that is exactly the reason that we are able to find worthwhile bonds in the municipal bond market. We have sought to find you worthwhile bonds in the middle of a bull market, at the height of the bull market, through zero to low yields, as well as whatever one wants to call 2026. This is how and why our approach to municipal bond investing often looks different from that of other professional managers.

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Going, Going, …

May 14th, 2026 by Kurt L. Smith

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.

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How About a Little Volatility?

February 6th, 2026 by Kurt L. Smith

How About a Little Volatility?

At least with Groundhog Day, you know things are expected to change either sooner or later. Not so with markets. Solid demand for municipal bonds continues to keep that market moving forward along with stock market indices. We know what follows a low volatility period in markets: high(er) volatility. We just do not know when the change will happen.

In the metals market, the “when” came last week as silver plunged forty percent over a two-day period while gold “only” lost twenty percent. For those of you looking for alternatives out there, this is how markets work. Some happen quickly like the above metals, while Bitcoin and Oil have lost forty percent over a longer time frames with Bitcoin peaking in October 2025 and Oil in March 2022. All these markets have a way to go to catch our bellwether U.S. Treasury Bond, the 1.25% of May 15, 2050, which is back to trading below fifty cents on the dollar compared to the slight premium it traded at shortly after its issue in 2020.

Trends happen. Trends have been established in Bonds, though we know many argue that this is a buying opportunity. I am sure many continue to say the same about the markets discussed above. Things are beginning to happen, albeit slowly, particularly in the U.S. treasury bond market. Today, February 2nd, the ten-year U.S. Treasury note closed at a 4.28% yield. This is the highest close since late August (save 4.29% on January 20th). Why is this significant? The Federal Reserve cut its benchmark interest rate three times since late August, on September 17th, October 29th, and December 10th, yet the ten-year note has failed to follow, reversing course after hitting 3.93% on October 17th.

Expectations for further rate cuts by the Federal Reserve continue to be priced into the treasury yield curve. This is to say short term yields on treasury securities are low (3.5% to 3.8%, approximately) while longer term yields are rising now 4.25% to over 4.90%). But expectations are just that and they are subject to change, sometimes by a lot and sometimes quickly.

You have been lucky enough to live through one of the greatest asset price booms of all time. Owners of long-term bonds know, or should know, after almost six years since peaking that the price boom of Bonds is over, though investment professionals somehow continue to convince investors they should continue to own bonds. Hope appears to be their plan, and like expectations, hope can shrivel.

After huge moves in asset prices, Cash becomes king. Managing Cash through the tax-exempt, as well as taxable, municipal bond market is what we have been doing for our clients for many decades. We provide our clients with stability; your monthly statement is a testament to that. We continue to find select municipal bonds that we believe to be worthwhile in this market as well as for the trends that are established.

Copperas Cove Independent School District Bonds

Series 2026

AA- Underlying S&P AAA PSF Guaranteed

Due 2/15   Dated 2/1/26 Maturity 8/15/54

$79,110,000 Sold

Years   Maturity       Coupon        Yield*

1         2027             5.00%           2.26%

2         2028             5.00%           2.26%

3         2029             5.00%           2.50%

4         2030             5.00%           2.50%

5         2031             5.00%           2.36%

6         2032             5.00%           2.44%

7         2033             5.00%          2.53%

8         2034             5.00%          2.59%

9         2035             5.00%          2.69%

10       2036             5.00%          2.77%

11       2037**          5.00%          2.91%

12       2038**          5.00%          3.07%

13       2039**          5.00%          3.19%

14       2040**          5.00%          3.31%

15       2041**          5.00%          3.47%

16       2042**          5.00%          3.60%

17       2043**          4.00%          4.00%

18       2044**          4.00%          4.10%

19       2045**          4.00%          4.15%

20       2046**          4.00%          4.23%

21       2047**          4.125%        4.31%

22       2048**          4.25%          4.37%

25       2051**          4.25%          4.48%

28       2054**          4.375%        4.52%

*Yield to Worst (Call or Maturity) **Callable 2/15/36

Source: Bloomberg

This is an example of a new issue priced the week of 1/26/26. 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 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.

Interest Rate Cut Coming Wednesday

December 9th, 2025 by Kurt L. Smith

Short term U.S. Treasury yields continue to fall paving the way for another twenty-five basis point interest rate cut by the Federal Reserve at this week’s December 10 meeting. the six-month treasury bill fell from 5.59% August 29, 2023, to a new low of 3.68% last week, taking money market yields lower as well.

In a report issued by Crane Data on December 3, money market mutual fund assets recently broke the $8 trillion level for the first time, up from $6 trillion in August 2023 and $4 trillion in 2020, the COVID year. Cash may not be king, but these levels dwarf the $4 trillion-plus municipal bond market.

Obviously, investors of cash are willing to accept less returns as rates on short term securities and money market mutual funds have decreased since the Federal Reserve began cutting interest rates from 5.50% in September 2024 to perhaps 3.75% Wednesday. But unlike their long-term bond brethren, lower rates on money markets do not equate to higher prices and better performance. Lower rates on money markets merely gets you less: lower yields earn you less return.

This explains why longer-term bonds continue to be a high buzz asset class. Best to lock in these higher yields on longer bonds before they too shrivel like money market yields. We have only one month left in 2025 and if longer term interest rates can just hold in there, then purveyors of bonds will have 2025 performance figures to hawk further into 2026.

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Far From A Foregone Conclusion

October 31st, 2025 by Kurt L. Smith

Federal Reserve Chairman Jerome Powell opened his remarks following the October 29th quarter point interest rate cut saying: “A further reduction in the policy rate at the December (10th) meeting is not a foregone conclusion, far from it.” I am not a Fed watcher, but I applaud a statement that at least appears to be forceful.

Mr. Powell may be frustrated in my opinion. The Federal Reserve has cut the target interest rate 150 basis points, from 5.50% in September 2024 to this week’s 4%. What does the Federal Reserve have to show for it? When your mandate is to keep inflation low and employment high, I think the Federal Reserve should be frustrated, particularly when your declared inflation goal is 2% and we have not sniffed that level in years.

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Something Is Changing

October 8th, 2025 by Kurt L. Smith

You are not reading this letter for advice on the stock market or crypto so obviously that is not what I am talking about with respect to change. The change I am talking about, of course, is regarding interest rates. On September 17, 2025, the Federal Reserve reduced the federal funds rate by 25 basis points cut on September 17th as anticipated. Odds are currently high for another 25 basis point cut on October 29th (94.6% odds of cut per Bloomberg as of October 7, 2025).

We have talked about short-term cash yields and how the trend there has been lower. But the low yields for the past six months occurred on or about September 17th. On the short-term side, six-month US treasury bills bottomed at 3.75% on September 16th and are basically flat since, hence the continued high odds for another rate cut at the end of this month.

Yields on longer term US treasury ten-year notes hit their six-month low on September 17th, and just as I told you last month, yields have bounced higher since. This is early stage, but so far, the ten-year yield has done everything a change in trend needs. Look for higher yields on the ten-year note throughout year end and beyond.

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The End of a Move?

September 8th, 2025 by Kurt L. Smith

Sideways market movements can often seem perplexing. Just when you think interest rates should move one way, they meander the other; seemingly for months on end.

Welcome to the summer of 2025. Four months of longer-term U.S. Treasury yields ending little changed. The volatility of April saw interest rates plunge, then jump to even higher rates in May. Here we are at the end of unofficial summer after Labor Day with interest rates working their way back down to…normal?

This is how the bond markets act like a market. Several steps forward, one back. We have been here before: from the interest rate highs of October 2023 to a low in September 2024 I wrote often about the frustrations of a market in a correction.

The part of the bond market I care most about is the longer bonds. On this day before the monthly employment numbers are released (yes, by the Bureau of Labor Statistics), the thirty-year bellwether treasury trades at 4.88% (all prices and yields per Bloomberg). This yield is 94% of the 5.18% high back on October 23, 2023, and is much higher than 3.89% correction low on September 17, 2024. The trend for long term interest rates remains higher as I have said since March 2020 and the long end of the market is the place to see that most clearly.

Short-term interest rates, indicated by the six-month treasury bill, show a different picture. Today’s 3.96% yield sits on top of the spike low of 3.92% on April 7, 2025, during the height of April’s volatility and is down substantially from the 5.59% high of August 29, 2023. This summer’s plunge of yield on the six-month treasury bill puts the odds of a Federal Reserve rate cut of 25 basis points on September 17th at 95%, again per Bloomberg.

The Federal Reserve is a follower in my book, a follower of the six-month bill. Usually, employment data confirms the recent direction of interest rates so it would not surprise me if short term yields continued lower and the Federal Reserve comes through on September 17th with this first rate cut since December 18, 2024.

Unfortunately, it is those with cash in money market funds and other short-term instruments like treasury bills that have seen the effects of lower yields. These are generally not the moves you want to see as a holder of cash: a diminishing of your income.

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Municipal Performance Lags

August 4th, 2025 by Kurt L. Smith

What else is new? According to Bloomberg the municipal bond market is “logging its worst performance relative to US government debt since the start of the pandemic.” Municipals have lost 1% so far this year, trailing the 3% gain on US treasuries by about four percentage points.

Municipal bond pundits love to talk about supply and demand in the new issue market.  but over the long term, we believe that supply and demand should even out. As we have talked about for years, performance is determined not by owning the market, but by selecting your municipals with performance in mind.

We are in a bear market for bonds, and this means you have the wind in your face instead of at your back. Rising interest rates subtract from performance. Prior to the end of the bull market, falling interest rates gave a capital gain performance boost to portfolios. This trend change, in March 2020, makes performance figures in bonds look quite puny ever since.

For example, as of August 1, 2025, Vanguard Long-Term Tax-Exempt Fund Admiral Shares (VWLUX) reported total returns of -1.77%, +1.63%, and +0.18% for the one-, three-, and five-year periods, respectively (Source: Bloomberg).  You can pick your favorite municipal bond vehicle and it, unfortunately, will probably look fairly similar.

Similarity in the municipal market appears to be the rule in our four trillion-dollar market. Yes, managing assets is a matter of scale, as it appears most of the participants hold similar bonds. How else can I describe similar performance figures?

Owning the market has its advantages, particularly in a bull market. Owning seven stocks has its advantages as well, if they are THE seven stocks and the market continues as a bull. But owning the market in municipal bonds may not serve you as well as selecting your municipal bonds may serve you. Look at your statement over the past one-, three- and five-year periods or even longer.

In my opinion, the bear market for bonds is not complete. The asset gathering of Wall Street firms continues in municipals and watch any of their commercials; they are not selling the idea of buying in a bear market. Hard to fathom a bond market where our bellwether bond, the US Treasury 1.25% 5/15/2050 traded at over 100 in 2020 and consistently in the 50s or below for almost three years now, is worthwhile. Somebody, or something, owns that bond and hopefully it is not you. Have municipal bonds fared better than that bellwether? Perhaps, but who wants them; it is an indictment on owning long-term bonds in a bear market.

There are much better ways to keep your money safe and earn a worthwhile return at the same time. Individual municipal bonds are the key in a bond bear market. Individual bonds have maturity dates, unlike the mutual funds and exchange traded funds that are marketed however they are marketed. A maturity date is key; it was key to avoiding 5/15/2050 (then and now).

Since April 2025’s dramatic sell-off in bonds, interest rates have been trading in a range. How long this will continue, I do not know. But I do believe the trend is for higher interest rates despite seemingly everyone else continuing to invest in the municipal market, and its pathetic performance returns, hoping for better. The trend is not their friend, but it is ours.

Let me show you how The Select ApproachTM could work for you. For example, the Georgetown ISD bonds (below) is indicative of the general market. Look at those yields, below 3%, even before Friday’s rally (8/1/2025). We have options for short-term tax-exempt bonds; I suggest you consider them. We continue to find worthwhile bonds and I look forward to hearing from you.

Georgetown Independent School District, Texas

Unlimited Tax School Building and Refunding Bonds, Series 2025

Aa2 Moody Underlying AA Underlying S&P

Aaa Moody and AAA S&P on Permanent School Fund Guarantee

Due 2/15   Dated 8/26/25 Maturity 2/15/55

$334,005,000 Sold

Years   Maturity       Coupon        Yield*

1         2026             5.00%           2.52%

2         2027             5.00%           2.54%

3         2028             5.00%           2.57%

4         2029             5.00%           2.61%

5         2030             5.00%           2.75%

6         2031             5.00%           2.97%

7         2032             5.00%           3.10%

8         2033             5.00%          3.27%

9         2034             5.00%          3.38%

10       2035             5.00%          3.57%

11       2036**          5.50%          3.71%

12       2037**          5.50%          3.89%

13       2038**          5.50%          4.00%

14       2039**          5.00%          4.20%

15       2040**          5.00%          4.31%

16       2041**          5.00%          4.40%

17       2042**          5.00%          4.52%

18       2043**          5.00%          4.64%

19       2044**          5.00%          4.69%

20       2045**          5.00%          4.73%

21       2046**         5.25%          4.76%

22       2047**          5.25%          4.81%

23       2048**          5.25%          4.84%

24       2049**          5.25%          4.87%

25       2050**          5.25%          4.87%

30       2055**          5.25%          4.90%

*Yield to Worst (Call or Maturity) **Callable 2/15/35

Source: Bloomberg

This is an example of a new issue priced the week of 7/28/25. Provided for illustrative purposes only and is not a recommendation to buy or sell any specific investment.

Prices, yields and availability 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.

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