The US Municipal bond market has bounced off its recent bottom even as two anchors continue to weigh it down: Puerto Rico and tobacco settlement bonds.
Investment grade tax-exempt bonds tracked in the S&P National AMT-Free Municipal Bond Index have seen a 2.32% positive total return since it’s year to date low on September 5th 2013. In less than two weeks, the weighted average yield to worst of bonds in the index has fallen from 3.43% to 3.10% or a 33bp improvement. The S&P National AMT-Free Municipal Bond Index is still in negative territory for the year, down 3.87% year to date. A drop off in new issue supply and yields reaching more attractive levels have combined to help bring prices back up.
Tracking Puerto Rico municipal bonds since December 1998, the S&P Municipal Bond Puerto Rico Index hit a record high yield on September 9, 2013 with the index reaching a weighted average yield of slightly over 7%. Since that point, yields have improved by 49bps to end last night at a 6.51%. As of last night, the yield for Puerto Rico bonds is more than double those of the average seen in the S&P National AMT-Free Municipal Bond Index. This has been the worst quarter in the index history with a negative 12.68% return and so far the worst performing year with a year to date total return of negative 14.6%.