Wednesday, August 27, 2008

The Short End

For those seeking shelter on the short end of the curve, the instruments with some of the best yields may also be the instruments with the least amount of risk- a somewhat unusual situation in the bond markets.

According to Bloomberg, spreads currently show 3 year Aa2 rated industrials at +146, with 3 year Aa2 rated financials at +275. However, when one looks to the CD market, they'll see 3 year CDs at +220 or so...cheaper than AA2 rated industrials and within 50bps or so of the financial paper.

CDs? Boring old CDs? Yup, boring old, FDIC insured, certificates of deposit are yielding more than Aa2 rated industrials...something to consider next time you are looking on the short end of the curve.

Tuesday, August 12, 2008

Economic Recovery Act of 2008

In addition to providing relief to those stuck in subprime, high interest rate mortgages, the Housing and Economic Recovery Act of 2008 also provides a unique opportunity for those investors who use municipal bonds in their portfolios. With municipal yields in the ten year range at around 3.75%, and equivalent Treasuries at 3.90%, everyone who pays any taxes at all should be taking a hard look at municipals.

With the signing of the Act, the housing cap that existed for states to issue non AMT housing bonds has all but disappeared. Issuance of non AMT housing bonds is expected to rise dramatically over the next few months as states issue bonds to finance mortgages made available by the Economic Recovery Act. As supply increases, so too should the yields available to the municipal bond buyers. In fact, non AMT housing bonds are yielding approximately 100 basis points (1%) more than non housing bonds with the same rating.