In addition, the yield spread between the Barclays Municipal High Yield Bond Index and the Barclays (investment grade) Municipal Bond Index was at 410 basis points at the beginning of April. That is 128 basis points above the long-term average of 282 basis points and, as noted by Barclays, the widest since February 2012.
What I think is even more significant is the yield ratio of the Barclays Municipal High Yield Bond Index to the Barclays U.S. Corporate High Yield Index, which, as illustrated in the chart below, was at an astounding 130.1% at the end of March, its highest ratio in nearly 20 years. In my opinion, the potential opportunity has not gone unnoticed by hedge fund and cross-over corporate debt buyers.
Ratio of Municipal High Yield Index to U.S. Corporate High Yield Index Yield to Worst
December 1995 – March 2014
Source: Barclays Research.
Performance is not indicative of future results; current data may differ from data quoted. Indexes are unmanaged and are not securities in which an investment can be made.
The Barclays Municipal Bond Index covers investment-grade municipal bonds with a nominal maturity of one or more years. The Barclays Municipal High Yield Bond Index covers below investment-grade municipal bonds with a nominal maturity of one or more years. The Barclays U.S. Corporate High Yield Index covers 50 of the most liquid and tradable U.S. dollar-denominated, non-investment grade corporate bonds for sale in the U.S.