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Posts Tagged ‘trend change’

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.

Optimism Continues

July 1st, 2025 by Kurt L. Smith

The year is half over, and I hope you have enjoyed every minute of it. Financially speaking, the markets have not done much of anything, which has aligns well with our investment strategy. You continued to earn worthwhile tax-free returns and we’ve identified several new opportunities over the past six months.

As we close out the first half of the year, both equities and fixed income show signs of strength. Stocks have bounced up nicely, while bond prices have only edged slightly higher over the past six weeks, resulting in slightly lower yields. For example, look at the Katy ISD bonds below compared to last month’s Fort Bend County Toll Road. Last month there were no maturities below 3%; this month the first six years are below 3%. Longer term yields move relatively little (not much optimism out there), so perhaps more bond investors have turned skittish and prefer short-term over long-term, or they are just more optimistic on short-term bonds.

Meanwhile, stocks continue to perform in their own world, with bonds seemingly benefitting slightly from their buoyancy. Such optimism and bounce up in stock prices should make the first half performance figures look strong. If we could weather the storm that was back in April, just think where we can go from here. Isn’t optimism contagious?

You are familiar with this ebb and flow of markets because that is what you are investing in: a market. We know as bondholders that performance does not always move up and to the right. But that is the hope/belief/reality for those investing in stocks. On the other hand, bondholders, particularly those who believed long-term bonds were not a part of a market, have seen their performance struggle for years.

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Bears Out The Problem

March 5th, 2025 by Kurt L. Smith

Trend reversals take time with long term trends taking a long time to reverse. Throughout the multi-decade stock and bond bull markets we were used to trend reversals. By the time a downward trend was recognized, the odds were the correction was nearing its end and prices began to rise again. You might know this as buying the dips. It worked well for both stocks and bonds following the corrections of 2000, 2008 and 2020. But bonds failed to continue their bull ways while stocks went on to set new highs since then.

Bonds reversed trend in March 2020 almost five years to the day. We have entered a bond bear market, and you know it largely because I remind you every so often. Investors bought bonds on the dip in 2020, including you. Other investors invest in the bond market. Here at The Select ApproachTM, we rely on individual bonds to perform differently from the market.

Rather than selling one’s bonds in 2020 investors continued to buy because they were accustomed to buying dips. Even when the bond market failed to reach new highs in price, investors seemed pleased to buy cheaper bonds at yields much higher than in 2020. Buy more in a bear market? That is the power of Wall Street. That is the power of optimism. That is the power of not knowing the power of a bear market.

Of course, it may also be that investors do not really know how bonds work. Last month I discussed how individuals now own about seventy percent or $3 trillion of the $4.2 trillion municipal market. In a February 12th Bloomberg article, author Martin Z. Braun looked at the returns (after fees) of open-end municipal bond mutual funds compared to customized portfolios known as Separately Managed Accounts (SMAs). Long national municipal open-ended mutual funds delivered 2.25%, -1.01%, 0.83% and 2.21% for one year, three-year, five-year and ten-year respectively. Looking at the performance of long national municipal separate managed accounts (SMAs), those clocked in with 0.58%, -1.35%, 0.47% and 2.13% for the same respective periods.

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Fixin’ To

September 6th, 2024 by Kurt L. Smith

In late August we finally received the word from the mount on high. From his temporary perch at Jackson Hole, Federal Reserve Chairman Jerome Powell delivered his “time has come” speech. Treasury bills, the leader in all things short term, had obviously received advanced word as short-term interest rates broke to yearly lows.

Last month we noted treasury bills had fulfilled the requirements for a correction. We have long noted the key problem with corrections (like the problem with market tops) is it is tough to know how low low is (or how high high is). August brought us the strongest drop for yields in over a year as both three- and six-month bills hit new yearly lows. Chair Powell obviously noticed.

We are not treasury bill traders. Whether you are receiving a 2% taxable return on your cash in 2019 or 0% for the two years following the March 2020 beginning of the bond bear market, is not my primary concern. You would not have been happy then or even now when you are earning more. Selecting worthwhile municipal bonds is the key to your bond portfolio performance.

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Rate Cuts? Not So Fast (Obviously)

April 3rd, 2024 by Kurt L. Smith

Writing about market corrections is hardly exciting. Investors want to know where a market is going and when. The exciting part is when forward steps are being taken, not the times when the market takes a step back.

After almost forty years of making headway towards lower and lower yields, the market has reversed from 2020 to 2023 as yields rose from near zero to something substantial. Ten-year treasury note yields went from .31% March 9, 2020 to 5.02% on October 23, 2023 (yields and prices per Bloomberg). Shorter term yields, like three-month treasury bills, were negative in March 2020, rising to 5.51% last October 6th.

These were many steps forward in the new trend of higher yields and lower bond prices. But markets do not move in straight lines. A trending market needs to correct, taking a step, or maybe steps, back.

Here is the bad news. Corrections allow the trend to continue. From October 23rd to December 27th, the ten-year treasury yield fell from 5.02% to 3.78%. This correction generated a lot of excitement, particularly from those investors who own long term bonds at substantially higher prices purchased when rates were low. Lower yields boosted longer bond prices in the process.

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Everyone Is A Bull

July 26th, 2023 by Kurt L. Smith

Month after month after month of seemingly never-ending higher prices has galvanized almost everyone as a bull. Last October’s low prices seem to be long forgotten. Let the good times roll! Of course, I am talking about the bond market.

The bond market is every bit as bullish now as the stock market. The bond market gave up its role as market arbiter so long ago most investors no longer know (or care) that bond investors were once considered voice of reason (or the alarmists in the room). Bond vigilantes in Wikipedia refer to the Clinton, and later, Obama administration. Certainly, they are no longer relevant, even if they existed…they long became bond market bulls, like everyone else.

The bond market is so big, and it has performed like a bull for so long, every manager’s bond portfolio essentially looks alike: a portfolio chock full of duration because that is where long-term performance has been made. After all, it is a bull market world out there and everyone seems to know it.

Portfolio managers cannot afford to sell bonds that have performed almost every single year and of course this year their performance has been nothing but up. So, ride the bull wave just like their stock investing brethren.

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It’s A Bull, Bull, Bull World

November 30th, 2022 by Kurt L. Smith

After forty years of bull market in financial assets, one can only imagine how difficult a change in trend may be to recognize. We live in a bull market world, enjoy the bull market experience and we have been doing so, for so long, we believe it is just the way things are.

The bull market has existed for both stocks and bonds for decades. Rather than serve to diversify one’s portfolio, stocks and bonds have been in a tortoise/hare race to the top. Unlimited optimism, or even abundant optimism, can only push bond prices so high, but for stocks, truly the sky was the limit.

So, it might make sense that the bond market might be the first to signal the bull market is over. The bond market performance story for 2022 has not yet been fully written, but unprecedented, the word used in these letters over the past several months, will surely be included.

Yet despite a treasury bond trading at half its value over a two-plus-year span, you would think investors would recognize this as a bond bear market. Staring at not only the worst bond market return in decades, but perhaps ever, we saw bond prices soar in November with Bloomberg saying last week “municipal bonds are having their best month in almost four decades.”

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Streaks End

November 30th, 2021 by Kurt L. Smith

Streaks don’t last forever. This past weekend in college football proved that. The college football playoffs this year will not include Clemson, Ohio State or Oklahoma. Despite all reason, the best talent, and the fact we all love winners, the playoff runs for these schools has ended. Only Alabama’s hope remains. 

Time will tell whether this is but a minor setback for these perennial powerhouses or one of long-lasting stature. I know the differences. I am a (now) long suffering Texas Longhorn fan. 

I also called the end of the bond bull market as March 6, 2000. An almost forty-year winning streak for the bond market is now over, yet many do not share my certitude, even after twenty-one ridiculously long months. 

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Why Municipal Bonds?

June 23rd, 2021 by Kurt L. Smith

The obvious answer to the question “Why municipals?” is they are tax-free. That is a good reason, especially if the benefit is greater than the alternatives. From the days of double-digit yields of the early 1980’s the added benefit of the tax-free feature has almost always been worthwhile to investors in the highest tax brackets.

Of course, an almost forty year bull market for bonds helps as well, but that is over. Bond performance no longer has the wind to its back; bond performance now faces many headwinds. Selection is key no matter the market, but in today’s new bond market, selection is paramount.

The final stages of the bond bull market have wreaked havoc with investment managers and their investor clients. Where is the yield and what has performed well in these final throes of the bull? You know it is junk, or high yield. For municipals this means prisons, nursing homes, dormitories and other housing or land-based, new projects. For corporates, well you can find lower rated credits across industries.

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