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Everyone is primarily invested in assets that must be sold to either realize performance or protect you from further loss. Individual bonds are an exception.

Your Bonds Need Your Help

February 5th, 2025 by Kurt L. Smith
  • Everyone seems to have some bonds. There are tens of trillions of dollars in bonds out there. The Securities Industry and Financial Markets Association (SIFMA) puts the figure at $46 trillion in the United States and $119 trillion worldwide. Closer to home, municipal bonds now make up $4.2 trillion of the market, per the Federal Reserve, with individuals making up 70% of the market (about $3 trillion) according to Franklin Templeton.

    As we discussed last month, investors in the bond markets own the market. Everyone’s portfolio looks like everyone else’s portfolio. When the municipal market started 2024 like a house on fire, everyone benefited. Year-to-date returns, per Bloomberg’s Municipal Bond Index, approached double digits through the first three quarters, only to lose almost all of it in the fourth quarter.

    This is what happens when you are not investing with the trend. The trend for bonds is lower prices. I discussed for many months how trending markets will usually undergo a multi-month correction, and that is how I was describing 2024’s bond performance. Individuals piled into municipals, not realizing they were buying into a bond bear market and at the wrong time.

    Investing in bonds the same way one has always invested in bonds is…, well you tell me. Look at your results over the past year, or three years, or five years. You are investing in a market in which the trend is down. And you are paying for the privilege, either a little, or a lot.

    When it comes to bonds, it also does not matter what fund you own or who the manager is or what their past performance has been. You own bonds and in a bear market your performance is going to suffer. Since seemingly no one has determined that this is a bond bear market, I would say the greatest suffering is yet to come.

    The Select ApproachTM does not own the market in bonds. We took a different approach when the bond market trend changed. Selection has always been the key, as the name suggests. Municipal bonds can be unique, something not found in treasury securities, corporate bonds, or mortgages. Most of all I select municipal bonds I believe will perform, particularly when other bonds fail to perform as they did last year or the year before or the year before that. Hopefully you are getting the picture.

    Everyone is primarily invested in assets that must be sold to either realize performance or protect you from further loss. Individual bonds are an exception. If you own individual bonds, then usually they mature at par. This might protect you from loss, or perhaps not. The difference between a bull market (1981 through March 2020) and a bear market (since March 2020) is huge. A bear market demands action to avoid loss. The number one action it demands is to do something different.

    Today’s sky-high optimism will not last forever, nor will the priced to perfection bond market that so far continues to hold up. This provides you with an opportunity to move forward and make the changes needed in your bond portfolio. Let’s talk bonds and let me show you how you can prepare for the next move in the bond bear market.

    Highland Park Independent School District, TX

    Unlimited Tax School Building Bonds, Series 2025

    Aaa Underlying Moody  AAA Underlying Fitch

    Due 2/15   Dated 2/15/25 Maturity 2/15/45

    $127,500,000 Sold

    Years   Maturity       Coupon        Yield*

    1         2026             5.00%           3.25%

    2         2027             5.00%           3.15%

    3         2028             5.00%           3.05%

    4         2029             5.00%           3.05%

    5         2030             6.00%           3.10%

    6         2031             5.00%           3.15%

    7         2032             5.00%           3.20%

    8         2033             5.00%          3.30%

    9         2034             5.00%          3.35%

    10       2035             5.00%          3.40%

    11       2036**          5.00%          3.50%

    12       2037**          5.00%          3.60%

    13       2038**          5.00%          3.70%

    14       2039**          5.00%          3.80%

    15       2040**          5.00%          3.90%

    16       2041**          4.00%          4.00%

    17       2042**          4.00%          4.05%

    18       2043**          4.00%          4.09%

    19       2044**          4.00%          4.13%

    20       2045**          4.00%          4.16%

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

    Source: Bloomberg

    This is an example of a new issue priced the week of 1/27/25

    Prices, yields and availability subject to change

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