Optimism Continues

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.

Optimism is contagious so why let the stock crowd or the crypto crowd hog it all? No, bondholders are just as optimistic, continuing to hold on to their long-term bonds with the hope (seemingly conviction) that this time they will finally see long-term rates turn lower and reverse the five years of performance pain.

Thankfully we have experienced none of that pain. The worthwhile municipal bonds in your portfolio have produced performance figures up and to the right, an anomaly in bond market performance. Take a look at your statement.

At the end of July, the Federal Reserve has another chance to lower its target interest rate from 4.50%. Bloomberg currently calculates the odds of a cut as unlikely but that is still much greater than the near zero chance Bloomberg calculated last month. That is optimism at work!

According to Bloomberg, the U.S. Treasury Index finished the first half up 3.79%, a return that is fighting to catch the performance of treasury bills and even some money market funds. Our focus at The Select Approach^TM has been on seeking above that level on a tax-free basis, as you know from our conversations and your confirmations.

The Select Approach^TM is working for you. The ability to compound positive performance returns year after year is a huge advantage. Today’s market optimism for bonds should give way to the trend in bonds, which is lower prices and higher yields. Our approach has weathered that trend for years. Now the question remains how will the rest of the bond market respond when a little adversity hits?

Sleep well and enjoy your summer. The Select Approach^TM will continue to monitor developments closely, including any potential Fed action or shifts in market trend. In the meantime, rest assured your munipal bond holdings remain well-positioned.

Katy Independent School District, Texas

Unlimited Tax School Building Bonds, Series 2025

Aa1 Moody Underlying AA Underlying S&P

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

Due 2/15   Dated 7/1/25 Maturity 2/15/55

$439,805,000 Sold

Years   Maturity       Coupon        Yield*

1         2026             5.00%           2.75%

2         2027             5.00%           2.76%

3         2028             5.00%           2.77%

4         2029             5.00%           2.80%

5         2030             5.00%           2.87%

6         2031             5.00%           2.97%

7         2032             5.00%           3.06%

8         2033             5.00%          3.16%

9         2034             5.00%          3.27%

10       2035             5.00%          3.44%

11       2036**          5.00%          3.61%

12       2037**          5.00%          3.75%

13       2038**          5.00%          3.89%

14       2039**          5.00%          3.99%

15       2040**          5.00%          4.09%

16       2041**          5.00%          4.20%

17       2042**          5.00%          4.32%

18       2043**          5.00%          4.43%

19       2044**          5.00%          4.46%

20       2045**          5.00%          4.51%

21       2046**         5.00%          4.58%

22       2047**          5.00%          4.64%

23       2048**          5.00%          4.68%

24       2049**          5.00%          4.72%

25       2050**          5.00%          4.76%

29       2054**          5.25%          4.94%

30       2055**          4.75%          4.91%

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

Source: Bloomberg

This is an example of a new issue priced the week of 6/23/25. 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.