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While market volatility over the last few weeks drove Treasury yields down, odd-lot municipal bonds yields remained intact. This creates a unique buying opportunity for individual investors.
The dramatic market events of the past few weeks, including the debt-ceiling debate, S&P downgrade and persistent troubles in Europe, have unsettled investors and caused unusually high volatility in the equity markets. Treasury prices rallied in response, as investors looked for a safe place to park their money.
But while Treasury yields have consistently fallen, yields in the secondary market for retail (i.e., odd-lot) municipal bonds have been remarkably steady. As the chart below shows, the spread between munis and Treasury bonds has widened substantially since late July. (Corporate spreads have also increased during the past month.)
Source: MSRB and BondDesk Group LLC
This is a buying opportunity for retail investors. Based on the historical relationship between Treasury and muni yields, muni yields will most likely rather than rise fall in the near term. Investors with cash today have little to gain by staying on the sidelines.
