August 2018 Muni Market Monthly Report –“What Coupon of Choice? Part 4”
The big news in August 2018? Mainline West Tax Advantaged Opportunity Fund III was successfully wound down to a 10.49% IRR (16.35% tax equivalent)! Otherwise, August was another slow month for munis, as yields were virtually unchanged with the slight rally in taxable yields. The liquidation of Fund III in August comes as we see negative technicals over the next 30 to 60 days for munis. We still see munis on solid ground, but we can’t outperform every month!
This month, in our credit review, we look at round four of our “which coupon is best for you”study. We present a time-series analysis on OAS (Option Adjusted Spread) and total return results for 5%, 4%, and 3% coupon bonds over six-month and life-to-date time frames. Once again, the results stay consistent. Whether this means we have unraveled the secret to the best coupon, or have not had big enough market changes since 2015 to unravel our conclusions, we share our thoughts on which coupon is right for you.
Muni Market Review
In August, the muni market was virtually unchanged once again, but finally underperformed taxables. This has been the summer of snooze. Highlights as follows:
- Muni yields since May 31, 2018 have changed as follows:
- 5 year yields up 3 bps
- 10 year yields up 3 bps
- 15 year yields up 10 bps
- 30 year yields up 15 bps
- Yield changes for munis for the month of August were up 5 to 1 bps with curve flattening.
- Yield changes for taxable yields for the month were down 10 to 9 bps with the curve steepening slightly.
- Year-to-date, muni issuance is starting to pick up, but still lags 2017’s by 13.8%. This has caused munis to be less volatile and perform well, year-to-date.
- The supply/demand technicals over the next 30 to 60 days are negative and could cause some underperformance, but we don’t think munis are primed for any big negative moves.
In MainLine West news, the MainLine Tax Advantage Opportunity Fund III has been fully wound down. Over its five year life the Fund posted a 10.49% IRR (16.35% tax equivalent). This far exceeds its investment objective of 6 to 8%.