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Bond Market Match-Up: U.S. Corporate vs. Muni Bonds Explore the market dynamics shaping the performance of these two bond markets.

The U.S. Corporate and municipal bond markets seemed to be neck and neck in terms of total return performance for the first three quarters of 2017. However, distinct characteristics of both markets that have played key roles in driving performance could cause performance to vary significantly going forward.


Let’s take a look at some of the potential performance drivers and differentiators.


Coupon cash flow: As of September month-end, investment-grade tax-exempt municipal bonds tracked in the S&P National AMT-Free Municipal Bond Index had an average coupon of 4.61% vs. the average coupon of 3.72% of the bonds in the S&P 500®/MarketAxess Investment Grade Corporate Bond Index. In a low-yield and low-expected-return environment, municipal bonds offer higher-interest-rate cash flow that is tax-exempt.

Advantage: municipal bonds.


Yield: Investment-grade tax-exempt municipal bonds on average have yielded 2.03% vs. higher-yielding taxable investment-grade corporate bonds. However, looking at it from the perspective of taxable equivalent yield (TEY), municipal bonds have recently been at higher yields than their corporate bond equivalents. Please refer to table on next page.

Advantage: municipal bonds.

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