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LYNCH
MUNICIPAL BOND YIELD SCALE
3/21/03
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The
municipal bond market has moved dramatically lower in yield
since March 2002 (See Lynch Scale). This rally has been fueled
by investors' fear of the stock market, a declining economy,
potential war on various fronts, and concern with worldwide
deflation. Investors felt compelled to invest regardless of
yield or risk.
Some
comparisons:
|
| March
'02 Yield |
Yield
|
March
'03 |
|
| 2008 |
3.95
|
2008
|
|
| 2.70 |
|
|
|
| |
|
|
|
| 2013 |
4.55
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2013 |
|
| 3.85
|
|
|
|
| |
|
|
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| 2018 |
2018
|
2018
|
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| 4.35 |
|
|
|
| |
|
|
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| 2023 |
5.15
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2003
|
|
|
4.75
|
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| RESULT:
The municipal market has become very over-valued. We would use
such overvaluation to clean up portfolios. Investors still trying
to recoup from the stock market bubble have an opportunity to
take profits in the municipal market to offset stock losses. |
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LMBA
Yield Scale
|
2004
1.10
2005 1.50
2006 1.85
2007 2.30
2008 2.70
2009 3.05
2010 3.35
|
2011
3.60
2012 3.75
2013 3.85
2014 3.95
2015 4.05
2016 4.15
2017 4.25
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2018
4.35
2019 4.45
2020 4.50
2021 4.60
2022 4.65
2023 4.75
2024 4.80
|
2025
4.85
2026 4.85
2027 4.85
2028 4.90
2029 4.90
2030 4.90
2031 4.90
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THE
LYNCH MUNICIPAL BOND SCALE
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KEY
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Aaa
GO
|
+00
to +05 |
Aaa
insured
|
+15
to+20 |
|
Aa
revenue
|
+05
to+15 |
A
GO
|
+10
to +15 |
|
Aaa
pre-re
|
Ð05
to +05 |
Baa
revenue ** AMT***
|
+10
to+20 |
|
Aa
GO
|
+05
to +10 |
Baa
GO * Hi-Tax state
|
Ð10
to 00 |
|
A
revenue
|
+15
to+30 |
0% cpn
|
+20
to+40 |
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*This
category has outlived its usefulness. There are very few Baa
GO issues which are not insured.
** The yield spread between Baa revenue issues is now too
wide to create an effective range of values. This category
is dominated or influenced by airline and hospital revenue
bonds. Each issue must be evaluated on it own merit. Call
if you need help in valuing such credits.
***This range is for bonds rated A or better which are subject
to AMT. We make this distinction because many Baa or lower
airline revenue bonds are subject to AMT.
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HOW
TO USE THE KEY
First identify the maturity applicable on the Lynch Scale.
Write the yield for that maturity for Aaa. Then adjust the
yield based on the rating and category of the bond. Example
An A rated revenue bond maturing in 2025. The yield on the
LMBA Aaa scale is 4.85. The KEY above indicates adding 15
to 30 basis points. Add 15 basis points and the yield you
should receive is at least a 5.00.You would be offered an
additional 30 basis points yield if the bond at the lower
end of the category quality wise. GOING A STEP FURTHER if
the bonds are subject to AMT you add another 10 to 20 basis
points. 5.00 PLUS 20 basis points EQUALS 5.25.
PLEASE
REMEMBER THIS SCALE IS A GUIDE. IT CAN NOT POSSIBLY REFLECT
MARKET CONDITIONS (SUPPLY/DEMAND, BREAKING NEWS REGARDING
INTEREST RATES, ETC.) at any given moment in the life of a
market. HOWEVER IT IS A MARVELOUS TOOL IN DEALING WITH YOUR
BROKER AND HIS/HER RATIONALIZATION FOR A GIVEN YIELD HE/SHE
IS OFFERING YOU.
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