When I started the Muniland blog in April, 2011, municipal bonds were being affected by a low interest rate environment, making them expensive and offering low yields to investors. Since non-institutional investors usually have to pay big mark-ups to buy them, it didn’t make sense to encourage people to own individual bonds. But the interest rate environment in the next year will be changing, and folks might want to consider good quality municipal bonds as long-term investments. It may start to make more sense that I talk about trading commentaries by muniland professionals.
One of the most-used benchmarks in muniland is the “Municipal-to-Treasury” ratio. Anthony Valeri writing for Learnbonds.com says:
Municipal valuations are at their most attractive levels of the past several years, according to average municipal-to-Treasury yield ratios. Average 10- and 30-year AAA municipal bond yields are 112 percent and 114 percent, respectively, of comparable maturity Treasury yields (using Municipal Market Advisors yield data) as of July 10, 2013. The higher the yield ratio, the more attractive municipal bonds are relative to Treasuries and vice versa. A ratio over 100 percent means that yields on top-rated municipal bonds are exceeding those of comparable Treasuries, and investors get the added tax-benefit to boot.
This benchmark tells us how municipal bonds are trading versus Treasury bonds. They are at high levels on a historical basis. There is a flag waving over the sector saying value is here today.
Valeri says that Muni-Treasury ratios are at levels not seen in several years, but the data chart that he uses shows the current highs are similar to the highs reached around August of 2012.