Yield On The Run
- Wednesday, 05/23/2012
Muni High Yield has been a top-performing segment among municipal bonds, with a total return of 7.75% YTD through April 30, 2012, for Barclays Municipal High Yield Index1. I believe that the dynamic which has propelled performance in the investment grade muni market is also at play for muni high yield: demand is overwhelming supply.
Inflows from individual as well as institutional investors have been strong. According to year-to-date inflows, compiled by JPMorgan, of the more than $21B that has flowed into municipal mutual funds and ETFs, investors have poured $4.2B or 20% into municipal high yield — an average of nearly $210 million per week.
The price of some individual muni issues is higher by as many as 15 basis points from the beginning of the calendar year, which is representative of the kind of market movements that, in my opinion, have driven performance and continue to offer potential opportunity for those seeking relief from today's ultra low-yield environment.
As of April 30, 2012, according to Barclays, the yield spread of high yield to investment grade munis was at 365 basis points — still 92 basis points above the long-term average. As of May 18, 2012, the same yield spread, as reported by Barclays, is at 369 basis points, giving the investor a possible performance opportunity of 96 basis points as incentive to continue to participate in this market segment. Investors seem to have been particularly attracted to ETFs in the high-yield muni space, perhaps drawn by the liquidity features offered by the vehicle in a challenging market.
1The Barclays Capital High Yield Municipal Bond Index is considered representative of the broad market for non-investment grade, tax-exempt bonds with a maturity of at least one year.