Loaded With Optimism

Are investors concerned out there? Some may say so, but most are doing nothing. Stocks have sold off, but most indices have recovered, some, maybe half, of their losses. Lots of talk, fretting, ignoring, but seemingly little selling going on.

One might expect this in the stock markets. After all, the major stock indexes set record highs in the past several months and remain nicely higher than where they were a year or two (or many years) ago.

This is not the case for bonds. We are five-plus years removed from the bond bull market top in 2020, and investors have little, if anything, to show for their loyalty of sticking with their bond investment.

Performance matters were so I would think. Last month I wrote how losing four points on long term bonds makes positive performance very difficult. Then came April.

On April 4^th the Treasury Bond Future traded above 122; on April 9^th it traded below 112 (all yields and prices per Bloomberg). Ten points lower in three days. Volatility in bonds is nothing new in the ever-expanding bond bear market. Since setting a ten year low in 2020, the ICE Bank of America MOVE index has trended higher. Volatility is not your friend, and it has spread to the stock market as well.

Ten-year tax-exempt yields continue to set new bear market highs, meaning ten-year municipal bond prices continue to hit lower prices. Basis the Bloomberg BVAL Municipal AAA Yield curve, the ten-yield hit 3.39% on October 26, 2022. We hit 3.63% a year later October 30, 2023, setting off a multi-month correction we have discussed in these letters ever since. We saw early positive performance in 2024 largely wiped out by the end of the year.

With April, volatility rocked the world. On April 4^th the ten-year yield was 2.93%; a few days later 3.80% on April 9^th. Hello volatility and hello evaporation of asset values. The corrective phase following the October 2023 high in yield (low in prices) ended months ago. April’s new high in yields marks another mile marker on the road to higher yields (3.39%, 3.63%, and 3.80%) towards lower bond prices.

Last month I wrote “But Look At The Yield!” Just a few weeks later and they are now even higher, meaning lower bond prices. Yields on the longest City of Waco bond below plus 5% (5.03% Yield To Maturity on the 5.25% of 2055).

Resist the siren song of higher long-term yields. Unlike most of the past forty years, the trend for interest rates is higher, which means lower bond prices and poorer bond performance. The greater volatility is a continuing warning that just because interest rates on treasury bonds and municipal bonds have seen 5%, it does not mean we may see higher (perhaps much higher).

We have reached May without substantial selling of bonds and stocks. Yet we have seen the warnings: long-term bonds are to be avoided.

As the bond bull market was ending in the late 2010s, we sought worthwhile bonds that would perform as the bond bull market turned to bear. Now we continue to seek worthwhile bonds that will protect us from the price evaporation the financial markets experienced in April. Let The Select Approach^TM show you how.

City of Waco, Texas

Certificates of Participation, Series 2025A

Aa1 Moody Underlying AA+ Underlying S&P

Due 2/1   Dated 5/1/25 Maturity 2/1/55

$128,650,000 Sold

Years   Maturity       Coupon        Yield*

1         2026             5.00%           3.25%

2         2027             5.00%           3.27%

3         2028             5.00%           3.32%

4         2029             5.00%           3.41%

5         2030             5.00%           3.44%

6         2031             5.00%           3.46%

7         2032             5.00%           3.54%

8         2033             5.00%          3.59%

9         2034             5.00%          3.69%

10       2035             5.00%          3.77%

11       2036**          5.00%          3.86%

12       2037**          5.00%          3.93%

13       2038**          5.00%          3.98%

14       2039**          5.00%          4.07%

15       2040**          5.00%          4.17%

16       2041**          5.00%          4.28%

17       2042**          5.00%          4.36%

18       2043**          5.00%          4.43%

19       2044**          5.00%          4.50%

20       2045**          5.00%          4.57%

25       2050**          5.25%          4.71%

30       2055**          5.25%          4.81%

*Yield to Worst (Call or Maturity) **Callable 2/1/35

Source: Bloomberg

This is an example of a new issue priced the week of 4/21/25

Prices, yields and availability subject to change