the muni · 2019-12-10 · water conservation wind farms public education nonpro˜t hospitals...
TRANSCRIPT
![Page 1: The Muni · 2019-12-10 · Water Conservation Wind Farms Public Education Nonpro˜t Hospitals Public Transport A˚ordable Housing Yield measures the income that bonds pay on a monthly](https://reader036.vdocument.in/reader036/viewer/2022081406/5f1335982990b34fdf0939ba/html5/thumbnails/1.jpg)
U.S. infrastructure is in a state of disrepair.
After decades of neglect, the U.S. only scored a D+ in 2017.
Presente d by
More than investing.Invested.
nylinvestments.com
visualcapitalist.com@visualcap/visualcapitalist
1956
1%
2%
3%
4%
5%Yield to Worst
Sep.2013
Muni HY
Taxable Muni
U.S. Corp HY
Emerging Mkts Sovereign
Emerging Mkts Corp
Leveraged Loan
U.S. Corp IG
Muni IG
U.S. Agg
U.S. Securitized
U.S. Treasury
Agg ex U.S.
Municipal
2% 4% 6% 8%
Mar.2014
Sep.2014
Mar.2015
Sep.2015
Mar.2016
Sep.2016
Mar.2017
Sep.2017
Mar.2018
Sep.2018
Nov.2018
Taxable MuniUS Corp AA
US TreasuryTax-ExemptMuni AA
1961 1966 1971 1976 1981 1986 1991 1996 2001 2006 2011 2016
$342billion
$98billion
$100b
$200b
$300b
$400b
Public Spending on Transportation and Water Infrastructure (2017 dollars)
The Yield Pick Up Is Compelling2
U.S. Corporate High Yield 0.10
0.22
0.43
0.56
0.62
0.71
Pan-European Aggregate
JPM GBI (World) USD
U.S. Corporate Investment Grade
U.S. Treasury
U.S. Aggregate
0.00 0.20 0.40 0.60 0.80 1.00
No correlation Perfect positivecorrelation
Correlation of Taxable Munis to Other Bond Sectors6
Taxable municipal investment-grade index
Maturity Distribution of Outstanding Bonds (in years)
US Treasury+ Investment Grade Credit+ High Yield Corp+ Taxable Munis
US Treasury+ Investment Grade Credit+ High Yield Corp
US Treasury+ Investment Grade Credit
Risk
Return13%
10%
7%
4%
1%
2% 4% 6% 8%
Portfolio Return on Risk (Gross of Fees)7
with Hypothetical Addition of Taxable Munis (Jan. 2009 - Sep. 2018)
1-3 years
3-5 years
5-7 years
7-10 years
10-25 years
25+ years
Taxable MunicipalsCorporates
Annualized Total Return Post-Financial Crisis (Dec. 31, 2009 - Dec. 20, 2018)3
Distribution of Credit Ratings
Moody’s Rating Drift 1984 - 20165
US $40.8 Trillion Market
U.S. Municipals Global Corporates
U.S. Foreign & Emerging Markets High Yield/Securitized
% Outstanding
Moody’s Average Rating
Rati
ngs
Vari
ance
25%
20%
15%
10%
5%
Aaa
-0.60
ABS Index 369
Municipal $3,853Treasury $14,972
Asset-Backed $1,507Money Markets $1,052Federal Agency Securities $1,900
Corporate Debt $9,074
Mortgage Related $9,482
MBS Index 320
Credit Index 6,374
Agency Index 491Treasury Index 258
Municipal Index 52,838
-0.40
-0.20
0.00
0.20
1984 1990 1996 2002 2008 2014 2016
Aa1 Aa2 Aa3 A1 A2 A3 Baa1 Baa2 Baa3 Ba1 Ba2 Ba3 B1 B2 B3 Caa1 Caa2 Caa3 Ca C
The MuniOpportunity
The American Society of Civil Engineers (ASCE) regularly assesses the nation’s infrastructure - things like bridges,
airports, and drinking water - and scores it in a ‘report card’.
Municipal bonds are also quite popular with individual U.S. investors, as the interest income from most munici-pal bonds is not subject to federal income tax.
As a result, many local and state governments have been turning to taxable municipal bonds to �nance their infrastructure projects.
In the last decade, a lagging global economy led to historically low interest rates - many sovereign (national) bonds fell into negative territory. Consequent-ly, many investors sought enhanced yields by increasing corporate or emerg-ing-market credit risk.
Taxable municipal bonds provided an alternative source of yield potential:
Yields on AA taxable municipal bonds of 8 years or longer were 114 basis points higher than comparable Treasury yields.
This allocation is nothing new. State and local governments have traditionally shouldered the burden of U.S. infrastructure costs.
In order to fund such spending, state and local governments primarily rely on U.S. municipal bonds.
Taxable municipal bonds are an attractive investment for many reasons.
In addition to higher historical yields, the total returns of taxable U.S. municipal bonds
surpassed all but one major bond sector in the last decade.
Historically, municipal bond ratings have also been far more stable
than those of global corporates.
This means they help provide portfolio diversification and help manage volatility.
There are a few reasons for this stability:
The ASCE estimates that $4 trillion is needed to bring infrastructure up to a B grade.
Mostly below standard
Signi�cant deterioration
Strong risk of failure
To help meet this shortfall, the Trump administration has proposed a
$1.5 trillion planover 10 years.
$200 billionprovided by federal government
$1.3 trillionprovided by state and local governments, public-private partnerships (P3s)1
Source: Business Insider, February 12, 2018
Source: ASCE, 2017
Source: Congressional Budget Office, 2017
D+
State and Local Governments
Federal Government
Interestingly, these debt instruments are often aligned with sustainable development
WaterConservation
WindFarms
PublicEducation
Nonpro�tHospitals
PublicTransport
A�ordableHousing
Yieldmeasures the income that bonds pay on a monthly or quarterly basis.
Total returnis the combination of yield and the bond’s principal value �uctuation.
However, the U.S. tax codelimits the volume of non-taxable bonds issued and the purposes for issuing them.
Competitive Historical Yield and Strong Returns1
Most municipal bonds are high quality with low default rates, making them attractive to risk-conscious investors.
High Quality, Stable Credit Ratings2
The municipal bond market is highly fragmented, and most issues are too small to be included in a market index.
Still, the municipal bond index includes a whopping 53,000 issuers - almost 87% of all issuers in the U.S. bond index - though municipal bonds comprise less than 9% of the total U.S. bond debt by value.
Active investors have the potential to generate higher returns by applying their credit research and trading skills.
This market fragmentation, combined with limited sell-side research and many buy-and-hold investors, often leads to ine�cient pricing.
Institutional investors welcome this source of long-duration assets, as they can match them up with their long-dated obligations.
For example, a pension fund may invest in 30-year taxable municipals to help ensure it can pay guaranteed funds to its bene�ciaries over the same time frame.
As the U.S. begins to revitalize its infrastructure, taxable municipal bonds present a strong - and often overlooked - opportunity for investors.
Inef�cient Pricing3
Correlation measures the degree to which two securities move in relation to each other. In general, taxable municipal bonds have a low correlation to other �xed-income sectors.
Low Correlations4
Since taxable municipal bonds fund long-term capital projects, they are usually �nanced with longer maturing bonds.
Longer Durations
Taxable municipal bonds have many positive qualities that make them a strong contender for investment.
When added to a diversi�ed �xed-income portfolio, they have the potential to help improve the risk/return pro�le.
A CompellingPortfolio Addition
5
All data is from New York Life Investments unless otherwise stated. Footnotes:
1. Public-private partnership, or P3, is a contract between a governmental body and a private entity, with the goal of providing some public benefit, either an asset or a service.
2. Taxable Muni: ICE BofAML Broad US Taxable Municipal Securities Index; US Corp AA: ICE BofAML AA US Corporate Index; US Treasury: ICE BofAML US Treasury Index; Tax-Exempt Muni AA: ICE BofAML AA US Municipal Securities Index. Credit Ratings: S&P rates borrowers on a scale from AAA to D. AAA through BBB represent investment grade, while BB through D represent non-investment grade. Moody’s rates borrowers on a scale from Aaa through C. Aaa through Baa3 represent investment grade, while Ba1 through C represent non-investment grade. Past performance is no guarantee of future results.
3. US Corp HY: ICE BofAML US High Yield Index; Taxable Muni: ICE BofAML Taxable Municipal Index; Muni HY: Bloomberg Barclays Municipal High Yield Index; Emerging Mkts Sovereign: ICE BofAML Emerging Markets BBB & Lower Sovereign; Emerging Mkts Corp: ICE BofAML Emerging Markets Corporate Plus Index; US Corp IG: Bloomberg Barclays US Corp. Investment Grade; Leveraged Loan: S&P/LSTA Leveraged Loan Index; Muni IG: Bloomberg Barclays Municipal Investment Grade Index; US Agg: Bloomberg Barclays US Aggregate Index; US Securitized: Bloomberg Barclays US Securitized: MBS/ABS/CMBS; US Treasury: Bloomberg Barclays US Treasury Index; Agg ex US: Bloomberg Barclays Aggregate Ex-US Index.
4. Moody’s rates borrowers on a scale from Aaa through C. Aaa through Baa3 represent investment grade, while Ba1 through C represent non-investment grade. Credit Ratings: S&P rates borrowers on a scale from AAA to D. AAA through BBB represent investment grade, while BB through D represent non-investment grade. Past performance is no guarantee of future results.
5. Rating drift measures the net average number of notches a credit changes over the study period. It is defined as the average upgraded notches per issuer minus the average downgradednotches per issuer.
6. US Corp HY: ICE BofAML US High Yield Index; Pan-European Aggregate: Bloomberg Barclays Pan-European Aggregate Index; JPM GBI (World) USD: J.P. Morgan Global Bond Index (GBI Global Unhedged USD); U.S. Corp IG: Bloomberg Barclays US Corp. Investment Grade; U.S. Treasury: Bloomberg Barclays US Treasury Index; U.S. Agg: Bloomberg Barclays US Aggregate Index
7. Risk is measured by standard deviation. No representation is made as to the accuracy and completeness of information contained in this presentation that has been obtained from third parties. US Treasury: Bloomberg Barclays U.S. Intermediate Treasury Index; Investment Grade Credit: Bloomberg Barclays U.S. Credit Index; HY Corp: Bloomberg Barclays US Corporate High Yield Index; Taxable Munis: Bloomberg Barclays Municipal Index - Taxable Bonds.
“New York Life Investments” is both a service mark, and the common trade name, of the investment advisors affiliated with New York Life Insurance Company. The MainStay Funds® are managed by New York Life Investment Management LLC and distributed by NYLIFE Distributors LLC, 30 Hudson Street, Jersey City, NJ 07302, a wholly owned subsidiary of New York Life Insurance Company. NYLIFE Distributors LLC is a Member FINRA/SIPC.
New York Life, MainStay Investments, and their affiliates do not provide legal, accounting, or tax advice. You should obtain advice specific to your circumstances from your own legal, accounting, and tax advisors.
This material represents an assessment of the market environment as at a specific date; is subject to change; and is not intended to be a forecast of future events or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice regarding the funds or any issuer or security in particular.
This material contains general information only and does not take into account an individual's financial circumstances. This information should not be relied upon as a primary basis for an investment decision. Rather, an assessment should be made as to whether the information is appropriate in individual circumstances and consideration should be given to talking to a financial advisor before making an investment decision.
1823064 MS129-19 MS37mm-08/19
The sector’s 6.9% return beat the 4.6% return on U.S. corporate investment-grade bonds, a staple in most institutional portfolios.
6.9%
4.6%
Did You Know?
U.S. Municipals Global Corporates U.S. Recessions
Investment grade Non-investment grade
Over 76% rated A1 or better; tiny portion below investment grade
U.S. Municipals4
Only ~10% are AA rated;nearly half are below investment grade
0.81% for those rated BAA by S&P 0.84% for those rated AAA by S&P
Global Corporates
Rating Spread
Default Rate
Moody’s US Municipal Bond Defaults & Recoveries, 1970 – 2017. Source: Moody’s Investors Service.
Source: Moody’s US Municipal Bond Defaults and Recoveries 1970 – 2017;Moody’s Trends in Global Corporates Rating Transitions 1983 – 2017.
Yield-to-worst is the lowest potential yield that can be received without the issuer defaulting. Past performance is no guaranteeof future results, which will vary. It is not possible to invest directly in an index. Source: ICE BofAML, November 30, 2018
Past performance is no guarantee of future results, which will vary. It is not possible to invest directly in an index.
Source: municipals - S&P USPF Cumulative Average Default Rates 1986-2017; corporates - S&P US Corporate Average Cumulative Default Rates 1981-2017
June 30, 2008 – June 30, 2018. It is not possible to invest direct into an index. Source: Bloomberg Barclays Indices.
General obligation bonds are backed by the issuer’s full faith and credit. State and local governments can raise taxes as required.
Revenue bondsare backed by speci�c cash �ow streams including tolls and fees for essential services. Since many of these are virtual monopolies, prices can be raised without losing customers.
Indices by Numberof Issues
Outstanding U.S.Bond Debt ($U.S. billions)
57% of taxable municipal bonds have maturities of 10-25
16% of maturities exceed 25 years.
Municipal bonds are rarely a�ected by event risks such as leveraged buyouts.
In times of stress, municipal bond issuers have more options for covering their debt:
Why Taxable Municipal Bonds Are an Attractive Investment
Financing the
Source, number of issues: Bloomberg Barclays. Data as of March 31, 2018. Source, Outstanding US bond debt: The Securities Industry and Financial Markets Association (SIFMA), US Bond Market Issuance and Outstanding, October 4, 2018. Data as of June 30, 2018.
Source: eVestment. Past performance is no guarantee of future results, which will vary. It is not possible to invest directly in an index.
![Page 2: The Muni · 2019-12-10 · Water Conservation Wind Farms Public Education Nonpro˜t Hospitals Public Transport A˚ordable Housing Yield measures the income that bonds pay on a monthly](https://reader036.vdocument.in/reader036/viewer/2022081406/5f1335982990b34fdf0939ba/html5/thumbnails/2.jpg)
U.S. infrastructure is in a state of disrepair.
After decades of neglect, the U.S. only scored a D+ in 2017.
Presente d by
More than investing.Invested.
nylinvestments.com
visualcapitalist.com@visualcap/visualcapitalist
1956
1%
2%
3%
4%
5%Yield to Worst
Sep.2013
Muni HY
Taxable Muni
U.S. Corp HY
Emerging Mkts Sovereign
Emerging Mkts Corp
Leveraged Loan
U.S. Corp IG
Muni IG
U.S. Agg
U.S. Securitized
U.S. Treasury
Agg ex U.S.
Municipal
2% 4% 6% 8%
Mar.2014
Sep.2014
Mar.2015
Sep.2015
Mar.2016
Sep.2016
Mar.2017
Sep.2017
Mar.2018
Sep.2018
Nov.2018
Taxable MuniUS Corp AA
US TreasuryTax-ExemptMuni AA
1961 1966 1971 1976 1981 1986 1991 1996 2001 2006 2011 2016
$342billion
$98billion
$100b
$200b
$300b
$400b
Public Spending on Transportation and Water Infrastructure (2017 dollars)
The Yield Pick Up Is Compelling2
U.S. Corporate High Yield 0.10
0.22
0.43
0.56
0.62
0.71
Pan-European Aggregate
JPM GBI (World) USD
U.S. Corporate Investment Grade
U.S. Treasury
U.S. Aggregate
0.00 0.20 0.40 0.60 0.80 1.00
No correlation Perfect positivecorrelation
Correlation of Taxable Munis to Other Bond Sectors6
Taxable municipal investment-grade index
Maturity Distribution of Outstanding Bonds (in years)
US Treasury+ Investment Grade Credit+ High Yield Corp+ Taxable Munis
US Treasury+ Investment Grade Credit+ High Yield Corp
US Treasury+ Investment Grade Credit
Risk
Return13%
10%
7%
4%
1%
2% 4% 6% 8%
Portfolio Return on Risk (Gross of Fees)7
with Hypothetical Addition of Taxable Munis (Jan. 2009 - Sep. 2018)
1-3 years
3-5 years
5-7 years
7-10 years
10-25 years
25+ years
Taxable MunicipalsCorporates
Annualized Total Return Post-Financial Crisis (Dec. 31, 2009 - Dec. 20, 2018)3
Distribution of Credit Ratings
Moody’s Rating Drift 1984 - 20165
US $40.8 Trillion Market
U.S. Municipals Global Corporates
U.S. Foreign & Emerging Markets High Yield/Securitized
% Outstanding
Moody’s Average Rating
Rati
ngs
Vari
ance
25%
20%
15%
10%
5%
Aaa
-0.60
ABS Index 369
Municipal $3,853Treasury $14,972
Asset-Backed $1,507Money Markets $1,052Federal Agency Securities $1,900
Corporate Debt $9,074
Mortgage Related $9,482
MBS Index 320
Credit Index 6,374
Agency Index 491Treasury Index 258
Municipal Index 52,838
-0.40
-0.20
0.00
0.20
1984 1990 1996 2002 2008 2014 2016
Aa1 Aa2 Aa3 A1 A2 A3 Baa1 Baa2 Baa3 Ba1 Ba2 Ba3 B1 B2 B3 Caa1 Caa2 Caa3 Ca C
The MuniOpportunity
The American Society of Civil Engineers (ASCE) regularly assesses the nation’s infrastructure - things like bridges,
airports, and drinking water - and scores it in a ‘report card’.
Municipal bonds are also quite popular with individual U.S. investors, as the interest income from most munici-pal bonds is not subject to federal income tax.
As a result, many local and state governments have been turning to taxable municipal bonds to �nance their infrastructure projects.
In the last decade, a lagging global economy led to historically low interest rates - many sovereign (national) bonds fell into negative territory. Consequent-ly, many investors sought enhanced yields by increasing corporate or emerg-ing-market credit risk.
Taxable municipal bonds provided an alternative source of yield potential:
Yields on AA taxable municipal bonds of 8 years or longer were 114 basis points higher than comparable Treasury yields.
This allocation is nothing new. State and local governments have traditionally shouldered the burden of U.S. infrastructure costs.
In order to fund such spending, state and local governments primarily rely on U.S. municipal bonds.
Taxable municipal bonds are an attractive investment for many reasons.
In addition to higher historical yields, the total returns of taxable U.S. municipal bonds
surpassed all but one major bond sector in the last decade.
Historically, municipal bond ratings have also been far more stable
than those of global corporates.
This means they help provide portfolio diversification and help manage volatility.
There are a few reasons for this stability:
The ASCE estimates that $4 trillion is needed to bring infrastructure up to a B grade.
Mostly below standard
Signi�cant deterioration
Strong risk of failure
To help meet this shortfall, the Trump administration has proposed a
$1.5 trillion planover 10 years.
$200 billionprovided by federal government
$1.3 trillionprovided by state and local governments, public-private partnerships (P3s)1
Source: Business Insider, February 12, 2018
Source: ASCE, 2017
Source: Congressional Budget Office, 2017
D+
State and Local Governments
Federal Government
Interestingly, these debt instruments are often aligned with sustainable development
WaterConservation
WindFarms
PublicEducation
Nonpro�tHospitals
PublicTransport
A�ordableHousing
Yieldmeasures the income that bonds pay on a monthly or quarterly basis.
Total returnis the combination of yield and the bond’s principal value �uctuation.
However, the U.S. tax codelimits the volume of non-taxable bonds issued and the purposes for issuing them.
Competitive Historical Yield and Strong Returns1
Most municipal bonds are high quality with low default rates, making them attractive to risk-conscious investors.
High Quality, Stable Credit Ratings2
The municipal bond market is highly fragmented, and most issues are too small to be included in a market index.
Still, the municipal bond index includes a whopping 53,000 issuers - almost 87% of all issuers in the U.S. bond index - though municipal bonds comprise less than 9% of the total U.S. bond debt by value.
Active investors have the potential to generate higher returns by applying their credit research and trading skills.
This market fragmentation, combined with limited sell-side research and many buy-and-hold investors, often leads to ine�cient pricing.
Institutional investors welcome this source of long-duration assets, as they can match them up with their long-dated obligations.
For example, a pension fund may invest in 30-year taxable municipals to help ensure it can pay guaranteed funds to its bene�ciaries over the same time frame.
As the U.S. begins to revitalize its infrastructure, taxable municipal bonds present a strong - and often overlooked - opportunity for investors.
Inef�cient Pricing3
Correlation measures the degree to which two securities move in relation to each other. In general, taxable municipal bonds have a low correlation to other �xed-income sectors.
Low Correlations4
Since taxable municipal bonds fund long-term capital projects, they are usually �nanced with longer maturing bonds.
Longer Durations
Taxable municipal bonds have many positive qualities that make them a strong contender for investment.
When added to a diversi�ed �xed-income portfolio, they have the potential to help improve the risk/return pro�le.
A CompellingPortfolio Addition
5
All data is from New York Life Investments unless otherwise stated. Footnotes:
1. Public-private partnership, or P3, is a contract between a governmental body and a private entity, with the goal of providing some public benefit, either an asset or a service.
2. Taxable Muni: ICE BofAML Broad US Taxable Municipal Securities Index; US Corp AA: ICE BofAML AA US Corporate Index; US Treasury: ICE BofAML US Treasury Index; Tax-Exempt Muni AA: ICE BofAML AA US Municipal Securities Index. Credit Ratings: S&P rates borrowers on a scale from AAA to D. AAA through BBB represent investment grade, while BB through D represent non-investment grade. Moody’s rates borrowers on a scale from Aaa through C. Aaa through Baa3 represent investment grade, while Ba1 through C represent non-investment grade. Past performance is no guarantee of future results.
3. US Corp HY: ICE BofAML US High Yield Index; Taxable Muni: ICE BofAML Taxable Municipal Index; Muni HY: Bloomberg Barclays Municipal High Yield Index; Emerging Mkts Sovereign: ICE BofAML Emerging Markets BBB & Lower Sovereign; Emerging Mkts Corp: ICE BofAML Emerging Markets Corporate Plus Index; US Corp IG: Bloomberg Barclays US Corp. Investment Grade; Leveraged Loan: S&P/LSTA Leveraged Loan Index; Muni IG: Bloomberg Barclays Municipal Investment Grade Index; US Agg: Bloomberg Barclays US Aggregate Index; US Securitized: Bloomberg Barclays US Securitized: MBS/ABS/CMBS; US Treasury: Bloomberg Barclays US Treasury Index; Agg ex US: Bloomberg Barclays Aggregate Ex-US Index.
4. Moody’s rates borrowers on a scale from Aaa through C. Aaa through Baa3 represent investment grade, while Ba1 through C represent non-investment grade. Credit Ratings: S&P rates borrowers on a scale from AAA to D. AAA through BBB represent investment grade, while BB through D represent non-investment grade. Past performance is no guarantee of future results.
5. Rating drift measures the net average number of notches a credit changes over the study period. It is defined as the average upgraded notches per issuer minus the average downgradednotches per issuer.
6. US Corp HY: ICE BofAML US High Yield Index; Pan-European Aggregate: Bloomberg Barclays Pan-European Aggregate Index; JPM GBI (World) USD: J.P. Morgan Global Bond Index (GBI Global Unhedged USD); U.S. Corp IG: Bloomberg Barclays US Corp. Investment Grade; U.S. Treasury: Bloomberg Barclays US Treasury Index; U.S. Agg: Bloomberg Barclays US Aggregate Index
7. Risk is measured by standard deviation. No representation is made as to the accuracy and completeness of information contained in this presentation that has been obtained from third parties. US Treasury: Bloomberg Barclays U.S. Intermediate Treasury Index; Investment Grade Credit: Bloomberg Barclays U.S. Credit Index; HY Corp: Bloomberg Barclays US Corporate High Yield Index; Taxable Munis: Bloomberg Barclays Municipal Index - Taxable Bonds.
“New York Life Investments” is both a service mark, and the common trade name, of the investment advisors affiliated with New York Life Insurance Company. The MainStay Funds® are managed by New York Life Investment Management LLC and distributed by NYLIFE Distributors LLC, 30 Hudson Street, Jersey City, NJ 07302, a wholly owned subsidiary of New York Life Insurance Company. NYLIFE Distributors LLC is a Member FINRA/SIPC.
New York Life, MainStay Investments, and their affiliates do not provide legal, accounting, or tax advice. You should obtain advice specific to your circumstances from your own legal, accounting, and tax advisors.
This material represents an assessment of the market environment as at a specific date; is subject to change; and is not intended to be a forecast of future events or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice regarding the funds or any issuer or security in particular.
This material contains general information only and does not take into account an individual's financial circumstances. This information should not be relied upon as a primary basis for an investment decision. Rather, an assessment should be made as to whether the information is appropriate in individual circumstances and consideration should be given to talking to a financial advisor before making an investment decision.
1823064 MS129-19 MS37mm-08/19
The sector’s 6.9% return beat the 4.6% return on U.S. corporate investment-grade bonds, a staple in most institutional portfolios.
6.9%
4.6%
Did You Know?
U.S. Municipals Global Corporates U.S. Recessions
Investment grade Non-investment grade
Over 76% rated A1 or better; tiny portion below investment grade
U.S. Municipals4
Only ~10% are AA rated;nearly half are below investment grade
0.81% for those rated BAA by S&P 0.84% for those rated AAA by S&P
Global Corporates
Rating Spread
Default Rate
Moody’s US Municipal Bond Defaults & Recoveries, 1970 – 2017. Source: Moody’s Investors Service.
Source: Moody’s US Municipal Bond Defaults and Recoveries 1970 – 2017;Moody’s Trends in Global Corporates Rating Transitions 1983 – 2017.
Yield-to-worst is the lowest potential yield that can be received without the issuer defaulting. Past performance is no guaranteeof future results, which will vary. It is not possible to invest directly in an index. Source: ICE BofAML, November 30, 2018
Past performance is no guarantee of future results, which will vary. It is not possible to invest directly in an index.
Source: municipals - S&P USPF Cumulative Average Default Rates 1986-2017; corporates - S&P US Corporate Average Cumulative Default Rates 1981-2017
June 30, 2008 – June 30, 2018. It is not possible to invest direct into an index. Source: Bloomberg Barclays Indices.
General obligation bonds are backed by the issuer’s full faith and credit. State and local governments can raise taxes as required.
Revenue bondsare backed by speci�c cash �ow streams including tolls and fees for essential services. Since many of these are virtual monopolies, prices can be raised without losing customers.
Indices by Numberof Issues
Outstanding U.S.Bond Debt ($U.S. billions)
57% of taxable municipal bonds have maturities of 10-25
16% of maturities exceed 25 years.
Municipal bonds are rarely a�ected by event risks such as leveraged buyouts.
In times of stress, municipal bond issuers have more options for covering their debt:
Why Taxable Municipal Bonds Are an Attractive Investment
Financing the
Source, number of issues: Bloomberg Barclays. Data as of March 31, 2018. Source, Outstanding US bond debt: The Securities Industry and Financial Markets Association (SIFMA), US Bond Market Issuance and Outstanding, October 4, 2018. Data as of June 30, 2018.
Source: eVestment. Past performance is no guarantee of future results, which will vary. It is not possible to invest directly in an index.
![Page 3: The Muni · 2019-12-10 · Water Conservation Wind Farms Public Education Nonpro˜t Hospitals Public Transport A˚ordable Housing Yield measures the income that bonds pay on a monthly](https://reader036.vdocument.in/reader036/viewer/2022081406/5f1335982990b34fdf0939ba/html5/thumbnails/3.jpg)
U.S. infrastructure is in a state of disrepair.
After decades of neglect, the U.S. only scored a D+ in 2017.
Presente d by
More than investing.Invested.
nylinvestments.com
visualcapitalist.com@visualcap/visualcapitalist
1956
1%
2%
3%
4%
5%Yield to Worst
Sep.2013
Muni HY
Taxable Muni
U.S. Corp HY
Emerging Mkts Sovereign
Emerging Mkts Corp
Leveraged Loan
U.S. Corp IG
Muni IG
U.S. Agg
U.S. Securitized
U.S. Treasury
Agg ex U.S.
Municipal
2% 4% 6% 8%
Mar.2014
Sep.2014
Mar.2015
Sep.2015
Mar.2016
Sep.2016
Mar.2017
Sep.2017
Mar.2018
Sep.2018
Nov.2018
Taxable MuniUS Corp AA
US TreasuryTax-ExemptMuni AA
1961 1966 1971 1976 1981 1986 1991 1996 2001 2006 2011 2016
$342billion
$98billion
$100b
$200b
$300b
$400b
Public Spending on Transportation and Water Infrastructure (2017 dollars)
The Yield Pick Up Is Compelling2
U.S. Corporate High Yield 0.10
0.22
0.43
0.56
0.62
0.71
Pan-European Aggregate
JPM GBI (World) USD
U.S. Corporate Investment Grade
U.S. Treasury
U.S. Aggregate
0.00 0.20 0.40 0.60 0.80 1.00
No correlation Perfect positivecorrelation
Correlation of Taxable Munis to Other Bond Sectors6
Taxable municipal investment-grade index
Maturity Distribution of Outstanding Bonds (in years)
US Treasury+ Investment Grade Credit+ High Yield Corp+ Taxable Munis
US Treasury+ Investment Grade Credit+ High Yield Corp
US Treasury+ Investment Grade Credit
Risk
Return13%
10%
7%
4%
1%
2% 4% 6% 8%
Portfolio Return on Risk (Gross of Fees)7
with Hypothetical Addition of Taxable Munis (Jan. 2009 - Sep. 2018)
1-3 years
3-5 years
5-7 years
7-10 years
10-25 years
25+ years
Taxable MunicipalsCorporates
Annualized Total Return Post-Financial Crisis (Dec. 31, 2009 - Dec. 20, 2018)3
Distribution of Credit Ratings
Moody’s Rating Drift 1984 - 20165
US $40.8 Trillion Market
U.S. Municipals Global Corporates
U.S. Foreign & Emerging Markets High Yield/Securitized
% Outstanding
Moody’s Average Rating
Rati
ngs
Vari
ance
25%
20%
15%
10%
5%
Aaa
-0.60
ABS Index 369
Municipal $3,853Treasury $14,972
Asset-Backed $1,507Money Markets $1,052Federal Agency Securities $1,900
Corporate Debt $9,074
Mortgage Related $9,482
MBS Index 320
Credit Index 6,374
Agency Index 491Treasury Index 258
Municipal Index 52,838
-0.40
-0.20
0.00
0.20
1984 1990 1996 2002 2008 2014 2016
Aa1 Aa2 Aa3 A1 A2 A3 Baa1 Baa2 Baa3 Ba1 Ba2 Ba3 B1 B2 B3 Caa1 Caa2 Caa3 Ca C
The MuniOpportunity
The American Society of Civil Engineers (ASCE) regularly assesses the nation’s infrastructure - things like bridges,
airports, and drinking water - and scores it in a ‘report card’.
Municipal bonds are also quite popular with individual U.S. investors, as the interest income from most munici-pal bonds is not subject to federal income tax.
As a result, many local and state governments have been turning to taxable municipal bonds to �nance their infrastructure projects.
In the last decade, a lagging global economy led to historically low interest rates - many sovereign (national) bonds fell into negative territory. Consequent-ly, many investors sought enhanced yields by increasing corporate or emerg-ing-market credit risk.
Taxable municipal bonds provided an alternative source of yield potential:
Yields on AA taxable municipal bonds of 8 years or longer were 114 basis points higher than comparable Treasury yields.
This allocation is nothing new. State and local governments have traditionally shouldered the burden of U.S. infrastructure costs.
In order to fund such spending, state and local governments primarily rely on U.S. municipal bonds.
Taxable municipal bonds are an attractive investment for many reasons.
In addition to higher historical yields, the total returns of taxable U.S. municipal bonds
surpassed all but one major bond sector in the last decade.
Historically, municipal bond ratings have also been far more stable
than those of global corporates.
This means they help provide portfolio diversification and help manage volatility.
There are a few reasons for this stability:
The ASCE estimates that $4 trillion is needed to bring infrastructure up to a B grade.
Mostly below standard
Signi�cant deterioration
Strong risk of failure
To help meet this shortfall, the Trump administration has proposed a
$1.5 trillion planover 10 years.
$200 billionprovided by federal government
$1.3 trillionprovided by state and local governments, public-private partnerships (P3s)1
Source: Business Insider, February 12, 2018
Source: ASCE, 2017
Source: Congressional Budget Office, 2017
D+
State and Local Governments
Federal Government
Interestingly, these debt instruments are often aligned with sustainable development
WaterConservation
WindFarms
PublicEducation
Nonpro�tHospitals
PublicTransport
A�ordableHousing
Yieldmeasures the income that bonds pay on a monthly or quarterly basis.
Total returnis the combination of yield and the bond’s principal value �uctuation.
However, the U.S. tax codelimits the volume of non-taxable bonds issued and the purposes for issuing them.
Competitive Historical Yield and Strong Returns1
Most municipal bonds are high quality with low default rates, making them attractive to risk-conscious investors.
High Quality, Stable Credit Ratings2
The municipal bond market is highly fragmented, and most issues are too small to be included in a market index.
Still, the municipal bond index includes a whopping 53,000 issuers - almost 87% of all issuers in the U.S. bond index - though municipal bonds comprise less than 9% of the total U.S. bond debt by value.
Active investors have the potential to generate higher returns by applying their credit research and trading skills.
This market fragmentation, combined with limited sell-side research and many buy-and-hold investors, often leads to ine�cient pricing.
Institutional investors welcome this source of long-duration assets, as they can match them up with their long-dated obligations.
For example, a pension fund may invest in 30-year taxable municipals to help ensure it can pay guaranteed funds to its bene�ciaries over the same time frame.
As the U.S. begins to revitalize its infrastructure, taxable municipal bonds present a strong - and often overlooked - opportunity for investors.
Inef�cient Pricing3
Correlation measures the degree to which two securities move in relation to each other. In general, taxable municipal bonds have a low correlation to other �xed-income sectors.
Low Correlations4
Since taxable municipal bonds fund long-term capital projects, they are usually �nanced with longer maturing bonds.
Longer Durations
Taxable municipal bonds have many positive qualities that make them a strong contender for investment.
When added to a diversi�ed �xed-income portfolio, they have the potential to help improve the risk/return pro�le.
A CompellingPortfolio Addition
5
All data is from New York Life Investments unless otherwise stated. Footnotes:
1. Public-private partnership, or P3, is a contract between a governmental body and a private entity, with the goal of providing some public benefit, either an asset or a service.
2. Taxable Muni: ICE BofAML Broad US Taxable Municipal Securities Index; US Corp AA: ICE BofAML AA US Corporate Index; US Treasury: ICE BofAML US Treasury Index; Tax-Exempt Muni AA: ICE BofAML AA US Municipal Securities Index. Credit Ratings: S&P rates borrowers on a scale from AAA to D. AAA through BBB represent investment grade, while BB through D represent non-investment grade. Moody’s rates borrowers on a scale from Aaa through C. Aaa through Baa3 represent investment grade, while Ba1 through C represent non-investment grade. Past performance is no guarantee of future results.
3. US Corp HY: ICE BofAML US High Yield Index; Taxable Muni: ICE BofAML Taxable Municipal Index; Muni HY: Bloomberg Barclays Municipal High Yield Index; Emerging Mkts Sovereign: ICE BofAML Emerging Markets BBB & Lower Sovereign; Emerging Mkts Corp: ICE BofAML Emerging Markets Corporate Plus Index; US Corp IG: Bloomberg Barclays US Corp. Investment Grade; Leveraged Loan: S&P/LSTA Leveraged Loan Index; Muni IG: Bloomberg Barclays Municipal Investment Grade Index; US Agg: Bloomberg Barclays US Aggregate Index; US Securitized: Bloomberg Barclays US Securitized: MBS/ABS/CMBS; US Treasury: Bloomberg Barclays US Treasury Index; Agg ex US: Bloomberg Barclays Aggregate Ex-US Index.
4. Moody’s rates borrowers on a scale from Aaa through C. Aaa through Baa3 represent investment grade, while Ba1 through C represent non-investment grade. Credit Ratings: S&P rates borrowers on a scale from AAA to D. AAA through BBB represent investment grade, while BB through D represent non-investment grade. Past performance is no guarantee of future results.
5. Rating drift measures the net average number of notches a credit changes over the study period. It is defined as the average upgraded notches per issuer minus the average downgradednotches per issuer.
6. US Corp HY: ICE BofAML US High Yield Index; Pan-European Aggregate: Bloomberg Barclays Pan-European Aggregate Index; JPM GBI (World) USD: J.P. Morgan Global Bond Index (GBI Global Unhedged USD); U.S. Corp IG: Bloomberg Barclays US Corp. Investment Grade; U.S. Treasury: Bloomberg Barclays US Treasury Index; U.S. Agg: Bloomberg Barclays US Aggregate Index
7. Risk is measured by standard deviation. No representation is made as to the accuracy and completeness of information contained in this presentation that has been obtained from third parties. US Treasury: Bloomberg Barclays U.S. Intermediate Treasury Index; Investment Grade Credit: Bloomberg Barclays U.S. Credit Index; HY Corp: Bloomberg Barclays US Corporate High Yield Index; Taxable Munis: Bloomberg Barclays Municipal Index - Taxable Bonds.
“New York Life Investments” is both a service mark, and the common trade name, of the investment advisors affiliated with New York Life Insurance Company. The MainStay Funds® are managed by New York Life Investment Management LLC and distributed by NYLIFE Distributors LLC, 30 Hudson Street, Jersey City, NJ 07302, a wholly owned subsidiary of New York Life Insurance Company. NYLIFE Distributors LLC is a Member FINRA/SIPC.
New York Life, MainStay Investments, and their affiliates do not provide legal, accounting, or tax advice. You should obtain advice specific to your circumstances from your own legal, accounting, and tax advisors.
This material represents an assessment of the market environment as at a specific date; is subject to change; and is not intended to be a forecast of future events or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice regarding the funds or any issuer or security in particular.
This material contains general information only and does not take into account an individual's financial circumstances. This information should not be relied upon as a primary basis for an investment decision. Rather, an assessment should be made as to whether the information is appropriate in individual circumstances and consideration should be given to talking to a financial advisor before making an investment decision.
1823064 MS129-19 MS37mm-08/19
The sector’s 6.9% return beat the 4.6% return on U.S. corporate investment-grade bonds, a staple in most institutional portfolios.
6.9%
4.6%
Did You Know?
U.S. Municipals Global Corporates U.S. Recessions
Investment grade Non-investment grade
Over 76% rated A1 or better; tiny portion below investment grade
U.S. Municipals4
Only ~10% are AA rated;nearly half are below investment grade
0.81% for those rated BAA by S&P 0.84% for those rated AAA by S&P
Global Corporates
Rating Spread
Default Rate
Moody’s US Municipal Bond Defaults & Recoveries, 1970 – 2017. Source: Moody’s Investors Service.
Source: Moody’s US Municipal Bond Defaults and Recoveries 1970 – 2017;Moody’s Trends in Global Corporates Rating Transitions 1983 – 2017.
Yield-to-worst is the lowest potential yield that can be received without the issuer defaulting. Past performance is no guaranteeof future results, which will vary. It is not possible to invest directly in an index. Source: ICE BofAML, November 30, 2018
Past performance is no guarantee of future results, which will vary. It is not possible to invest directly in an index.
Source: municipals - S&P USPF Cumulative Average Default Rates 1986-2017; corporates - S&P US Corporate Average Cumulative Default Rates 1981-2017
June 30, 2008 – June 30, 2018. It is not possible to invest direct into an index. Source: Bloomberg Barclays Indices.
General obligation bonds are backed by the issuer’s full faith and credit. State and local governments can raise taxes as required.
Revenue bondsare backed by speci�c cash �ow streams including tolls and fees for essential services. Since many of these are virtual monopolies, prices can be raised without losing customers.
Indices by Numberof Issues
Outstanding U.S.Bond Debt ($U.S. billions)
57% of taxable municipal bonds have maturities of 10-25
16% of maturities exceed 25 years.
Municipal bonds are rarely a�ected by event risks such as leveraged buyouts.
In times of stress, municipal bond issuers have more options for covering their debt:
Why Taxable Municipal Bonds Are an Attractive Investment
Financing the
Source, number of issues: Bloomberg Barclays. Data as of March 31, 2018. Source, Outstanding US bond debt: The Securities Industry and Financial Markets Association (SIFMA), US Bond Market Issuance and Outstanding, October 4, 2018. Data as of June 30, 2018.
Source: eVestment. Past performance is no guarantee of future results, which will vary. It is not possible to invest directly in an index.
![Page 4: The Muni · 2019-12-10 · Water Conservation Wind Farms Public Education Nonpro˜t Hospitals Public Transport A˚ordable Housing Yield measures the income that bonds pay on a monthly](https://reader036.vdocument.in/reader036/viewer/2022081406/5f1335982990b34fdf0939ba/html5/thumbnails/4.jpg)
U.S. infrastructure is in a state of disrepair.
After decades of neglect, the U.S. only scored a D+ in 2017.
Presente d by
More than investing.Invested.
nylinvestments.com
visualcapitalist.com@visualcap/visualcapitalist
1956
1%
2%
3%
4%
5%Yield to Worst
Sep.2013
Muni HY
Taxable Muni
U.S. Corp HY
Emerging Mkts Sovereign
Emerging Mkts Corp
Leveraged Loan
U.S. Corp IG
Muni IG
U.S. Agg
U.S. Securitized
U.S. Treasury
Agg ex U.S.
Municipal
2% 4% 6% 8%
Mar.2014
Sep.2014
Mar.2015
Sep.2015
Mar.2016
Sep.2016
Mar.2017
Sep.2017
Mar.2018
Sep.2018
Nov.2018
Taxable MuniUS Corp AA
US TreasuryTax-ExemptMuni AA
1961 1966 1971 1976 1981 1986 1991 1996 2001 2006 2011 2016
$342billion
$98billion
$100b
$200b
$300b
$400b
Public Spending on Transportation and Water Infrastructure (2017 dollars)
The Yield Pick Up Is Compelling2
U.S. Corporate High Yield 0.10
0.22
0.43
0.56
0.62
0.71
Pan-European Aggregate
JPM GBI (World) USD
U.S. Corporate Investment Grade
U.S. Treasury
U.S. Aggregate
0.00 0.20 0.40 0.60 0.80 1.00
No correlation Perfect positivecorrelation
Correlation of Taxable Munis to Other Bond Sectors6
Taxable municipal investment-grade index
Maturity Distribution of Outstanding Bonds (in years)
US Treasury+ Investment Grade Credit+ High Yield Corp+ Taxable Munis
US Treasury+ Investment Grade Credit+ High Yield Corp
US Treasury+ Investment Grade Credit
Risk
Return13%
10%
7%
4%
1%
2% 4% 6% 8%
Portfolio Return on Risk (Gross of Fees)7
with Hypothetical Addition of Taxable Munis (Jan. 2009 - Sep. 2018)
1-3 years
3-5 years
5-7 years
7-10 years
10-25 years
25+ years
Taxable MunicipalsCorporates
Annualized Total Return Post-Financial Crisis (Dec. 31, 2009 - Dec. 20, 2018)3
Distribution of Credit Ratings
Moody’s Rating Drift 1984 - 20165
US $40.8 Trillion Market
U.S. Municipals Global Corporates
U.S. Foreign & Emerging Markets High Yield/Securitized
% Outstanding
Moody’s Average Rating
Rati
ngs
Vari
ance
25%
20%
15%
10%
5%
Aaa
-0.60
ABS Index 369
Municipal $3,853Treasury $14,972
Asset-Backed $1,507Money Markets $1,052Federal Agency Securities $1,900
Corporate Debt $9,074
Mortgage Related $9,482
MBS Index 320
Credit Index 6,374
Agency Index 491Treasury Index 258
Municipal Index 52,838
-0.40
-0.20
0.00
0.20
1984 1990 1996 2002 2008 2014 2016
Aa1 Aa2 Aa3 A1 A2 A3 Baa1 Baa2 Baa3 Ba1 Ba2 Ba3 B1 B2 B3 Caa1 Caa2 Caa3 Ca C
The MuniOpportunity
The American Society of Civil Engineers (ASCE) regularly assesses the nation’s infrastructure - things like bridges,
airports, and drinking water - and scores it in a ‘report card’.
Municipal bonds are also quite popular with individual U.S. investors, as the interest income from most munici-pal bonds is not subject to federal income tax.
As a result, many local and state governments have been turning to taxable municipal bonds to �nance their infrastructure projects.
In the last decade, a lagging global economy led to historically low interest rates - many sovereign (national) bonds fell into negative territory. Consequent-ly, many investors sought enhanced yields by increasing corporate or emerg-ing-market credit risk.
Taxable municipal bonds provided an alternative source of yield potential:
Yields on AA taxable municipal bonds of 8 years or longer were 114 basis points higher than comparable Treasury yields.
This allocation is nothing new. State and local governments have traditionally shouldered the burden of U.S. infrastructure costs.
In order to fund such spending, state and local governments primarily rely on U.S. municipal bonds.
Taxable municipal bonds are an attractive investment for many reasons.
In addition to higher historical yields, the total returns of taxable U.S. municipal bonds
surpassed all but one major bond sector in the last decade.
Historically, municipal bond ratings have also been far more stable
than those of global corporates.
This means they help provide portfolio diversification and help manage volatility.
There are a few reasons for this stability:
The ASCE estimates that $4 trillion is needed to bring infrastructure up to a B grade.
Mostly below standard
Signi�cant deterioration
Strong risk of failure
To help meet this shortfall, the Trump administration has proposed a
$1.5 trillion planover 10 years.
$200 billionprovided by federal government
$1.3 trillionprovided by state and local governments, public-private partnerships (P3s)1
Source: Business Insider, February 12, 2018
Source: ASCE, 2017
Source: Congressional Budget Office, 2017
D+
State and Local Governments
Federal Government
Interestingly, these debt instruments are often aligned with sustainable development
WaterConservation
WindFarms
PublicEducation
Nonpro�tHospitals
PublicTransport
A�ordableHousing
Yieldmeasures the income that bonds pay on a monthly or quarterly basis.
Total returnis the combination of yield and the bond’s principal value �uctuation.
However, the U.S. tax codelimits the volume of non-taxable bonds issued and the purposes for issuing them.
Competitive Historical Yield and Strong Returns1
Most municipal bonds are high quality with low default rates, making them attractive to risk-conscious investors.
High Quality, Stable Credit Ratings2
The municipal bond market is highly fragmented, and most issues are too small to be included in a market index.
Still, the municipal bond index includes a whopping 53,000 issuers - almost 87% of all issuers in the U.S. bond index - though municipal bonds comprise less than 9% of the total U.S. bond debt by value.
Active investors have the potential to generate higher returns by applying their credit research and trading skills.
This market fragmentation, combined with limited sell-side research and many buy-and-hold investors, often leads to ine�cient pricing.
Institutional investors welcome this source of long-duration assets, as they can match them up with their long-dated obligations.
For example, a pension fund may invest in 30-year taxable municipals to help ensure it can pay guaranteed funds to its bene�ciaries over the same time frame.
As the U.S. begins to revitalize its infrastructure, taxable municipal bonds present a strong - and often overlooked - opportunity for investors.
Inef�cient Pricing3
Correlation measures the degree to which two securities move in relation to each other. In general, taxable municipal bonds have a low correlation to other �xed-income sectors.
Low Correlations4
Since taxable municipal bonds fund long-term capital projects, they are usually �nanced with longer maturing bonds.
Longer Durations
Taxable municipal bonds have many positive qualities that make them a strong contender for investment.
When added to a diversi�ed �xed-income portfolio, they have the potential to help improve the risk/return pro�le.
A CompellingPortfolio Addition
5
All data is from New York Life Investments unless otherwise stated. Footnotes:
1. Public-private partnership, or P3, is a contract between a governmental body and a private entity, with the goal of providing some public benefit, either an asset or a service.
2. Taxable Muni: ICE BofAML Broad US Taxable Municipal Securities Index; US Corp AA: ICE BofAML AA US Corporate Index; US Treasury: ICE BofAML US Treasury Index; Tax-Exempt Muni AA: ICE BofAML AA US Municipal Securities Index. Credit Ratings: S&P rates borrowers on a scale from AAA to D. AAA through BBB represent investment grade, while BB through D represent non-investment grade. Moody’s rates borrowers on a scale from Aaa through C. Aaa through Baa3 represent investment grade, while Ba1 through C represent non-investment grade. Past performance is no guarantee of future results.
3. US Corp HY: ICE BofAML US High Yield Index; Taxable Muni: ICE BofAML Taxable Municipal Index; Muni HY: Bloomberg Barclays Municipal High Yield Index; Emerging Mkts Sovereign: ICE BofAML Emerging Markets BBB & Lower Sovereign; Emerging Mkts Corp: ICE BofAML Emerging Markets Corporate Plus Index; US Corp IG: Bloomberg Barclays US Corp. Investment Grade; Leveraged Loan: S&P/LSTA Leveraged Loan Index; Muni IG: Bloomberg Barclays Municipal Investment Grade Index; US Agg: Bloomberg Barclays US Aggregate Index; US Securitized: Bloomberg Barclays US Securitized: MBS/ABS/CMBS; US Treasury: Bloomberg Barclays US Treasury Index; Agg ex US: Bloomberg Barclays Aggregate Ex-US Index.
4. Moody’s rates borrowers on a scale from Aaa through C. Aaa through Baa3 represent investment grade, while Ba1 through C represent non-investment grade. Credit Ratings: S&P rates borrowers on a scale from AAA to D. AAA through BBB represent investment grade, while BB through D represent non-investment grade. Past performance is no guarantee of future results.
5. Rating drift measures the net average number of notches a credit changes over the study period. It is defined as the average upgraded notches per issuer minus the average downgradednotches per issuer.
6. US Corp HY: ICE BofAML US High Yield Index; Pan-European Aggregate: Bloomberg Barclays Pan-European Aggregate Index; JPM GBI (World) USD: J.P. Morgan Global Bond Index (GBI Global Unhedged USD); U.S. Corp IG: Bloomberg Barclays US Corp. Investment Grade; U.S. Treasury: Bloomberg Barclays US Treasury Index; U.S. Agg: Bloomberg Barclays US Aggregate Index
7. Risk is measured by standard deviation. No representation is made as to the accuracy and completeness of information contained in this presentation that has been obtained from third parties. US Treasury: Bloomberg Barclays U.S. Intermediate Treasury Index; Investment Grade Credit: Bloomberg Barclays U.S. Credit Index; HY Corp: Bloomberg Barclays US Corporate High Yield Index; Taxable Munis: Bloomberg Barclays Municipal Index - Taxable Bonds.
“New York Life Investments” is both a service mark, and the common trade name, of the investment advisors affiliated with New York Life Insurance Company. The MainStay Funds® are managed by New York Life Investment Management LLC and distributed by NYLIFE Distributors LLC, 30 Hudson Street, Jersey City, NJ 07302, a wholly owned subsidiary of New York Life Insurance Company. NYLIFE Distributors LLC is a Member FINRA/SIPC.
New York Life, MainStay Investments, and their affiliates do not provide legal, accounting, or tax advice. You should obtain advice specific to your circumstances from your own legal, accounting, and tax advisors.
This material represents an assessment of the market environment as at a specific date; is subject to change; and is not intended to be a forecast of future events or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice regarding the funds or any issuer or security in particular.
This material contains general information only and does not take into account an individual's financial circumstances. This information should not be relied upon as a primary basis for an investment decision. Rather, an assessment should be made as to whether the information is appropriate in individual circumstances and consideration should be given to talking to a financial advisor before making an investment decision.
1823064 MS129-19 MS37mm-08/19
The sector’s 6.9% return beat the 4.6% return on U.S. corporate investment-grade bonds, a staple in most institutional portfolios.
6.9%
4.6%
Did You Know?
U.S. Municipals Global Corporates U.S. Recessions
Investment grade Non-investment grade
Over 76% rated A1 or better; tiny portion below investment grade
U.S. Municipals4
Only ~10% are AA rated;nearly half are below investment grade
0.81% for those rated BAA by S&P 0.84% for those rated AAA by S&P
Global Corporates
Rating Spread
Default Rate
Moody’s US Municipal Bond Defaults & Recoveries, 1970 – 2017. Source: Moody’s Investors Service.
Source: Moody’s US Municipal Bond Defaults and Recoveries 1970 – 2017;Moody’s Trends in Global Corporates Rating Transitions 1983 – 2017.
Yield-to-worst is the lowest potential yield that can be received without the issuer defaulting. Past performance is no guaranteeof future results, which will vary. It is not possible to invest directly in an index. Source: ICE BofAML, November 30, 2018
Past performance is no guarantee of future results, which will vary. It is not possible to invest directly in an index.
Source: municipals - S&P USPF Cumulative Average Default Rates 1986-2017; corporates - S&P US Corporate Average Cumulative Default Rates 1981-2017
June 30, 2008 – June 30, 2018. It is not possible to invest direct into an index. Source: Bloomberg Barclays Indices.
General obligation bonds are backed by the issuer’s full faith and credit. State and local governments can raise taxes as required.
Revenue bondsare backed by speci�c cash �ow streams including tolls and fees for essential services. Since many of these are virtual monopolies, prices can be raised without losing customers.
Indices by Numberof Issues
Outstanding U.S.Bond Debt ($U.S. billions)
57% of taxable municipal bonds have maturities of 10-25
16% of maturities exceed 25 years.
Municipal bonds are rarely a�ected by event risks such as leveraged buyouts.
In times of stress, municipal bond issuers have more options for covering their debt:
Why Taxable Municipal Bonds Are an Attractive Investment
Financing the
Source, number of issues: Bloomberg Barclays. Data as of March 31, 2018. Source, Outstanding US bond debt: The Securities Industry and Financial Markets Association (SIFMA), US Bond Market Issuance and Outstanding, October 4, 2018. Data as of June 30, 2018.
Source: eVestment. Past performance is no guarantee of future results, which will vary. It is not possible to invest directly in an index.
![Page 5: The Muni · 2019-12-10 · Water Conservation Wind Farms Public Education Nonpro˜t Hospitals Public Transport A˚ordable Housing Yield measures the income that bonds pay on a monthly](https://reader036.vdocument.in/reader036/viewer/2022081406/5f1335982990b34fdf0939ba/html5/thumbnails/5.jpg)
U.S. infrastructure is in a state of disrepair.
After decades of neglect, the U.S. only scored a D+ in 2017.
Presente d by
More than investing.Invested.
nylinvestments.com
visualcapitalist.com@visualcap/visualcapitalist
1956
1%
2%
3%
4%
5%Yield to Worst
Sep.2013
Muni HY
Taxable Muni
U.S. Corp HY
Emerging Mkts Sovereign
Emerging Mkts Corp
Leveraged Loan
U.S. Corp IG
Muni IG
U.S. Agg
U.S. Securitized
U.S. Treasury
Agg ex U.S.
Municipal
2% 4% 6% 8%
Mar.2014
Sep.2014
Mar.2015
Sep.2015
Mar.2016
Sep.2016
Mar.2017
Sep.2017
Mar.2018
Sep.2018
Nov.2018
Taxable MuniUS Corp AA
US TreasuryTax-ExemptMuni AA
1961 1966 1971 1976 1981 1986 1991 1996 2001 2006 2011 2016
$342billion
$98billion
$100b
$200b
$300b
$400b
Public Spending on Transportation and Water Infrastructure (2017 dollars)
The Yield Pick Up Is Compelling2
U.S. Corporate High Yield 0.10
0.22
0.43
0.56
0.62
0.71
Pan-European Aggregate
JPM GBI (World) USD
U.S. Corporate Investment Grade
U.S. Treasury
U.S. Aggregate
0.00 0.20 0.40 0.60 0.80 1.00
No correlation Perfect positivecorrelation
Correlation of Taxable Munis to Other Bond Sectors6
Taxable municipal investment-grade index
Maturity Distribution of Outstanding Bonds (in years)
US Treasury+ Investment Grade Credit+ High Yield Corp+ Taxable Munis
US Treasury+ Investment Grade Credit+ High Yield Corp
US Treasury+ Investment Grade Credit
Risk
Return13%
10%
7%
4%
1%
2% 4% 6% 8%
Portfolio Return on Risk (Gross of Fees)7
with Hypothetical Addition of Taxable Munis (Jan. 2009 - Sep. 2018)
1-3 years
3-5 years
5-7 years
7-10 years
10-25 years
25+ years
Taxable MunicipalsCorporates
Annualized Total Return Post-Financial Crisis (Dec. 31, 2009 - Dec. 20, 2018)3
Distribution of Credit Ratings
Moody’s Rating Drift 1984 - 20165
US $40.8 Trillion Market
U.S. Municipals Global Corporates
U.S. Foreign & Emerging Markets High Yield/Securitized
% Outstanding
Moody’s Average Rating
Rati
ngs
Vari
ance
25%
20%
15%
10%
5%
Aaa
-0.60
ABS Index 369
Municipal $3,853Treasury $14,972
Asset-Backed $1,507Money Markets $1,052Federal Agency Securities $1,900
Corporate Debt $9,074
Mortgage Related $9,482
MBS Index 320
Credit Index 6,374
Agency Index 491Treasury Index 258
Municipal Index 52,838
-0.40
-0.20
0.00
0.20
1984 1990 1996 2002 2008 2014 2016
Aa1 Aa2 Aa3 A1 A2 A3 Baa1 Baa2 Baa3 Ba1 Ba2 Ba3 B1 B2 B3 Caa1 Caa2 Caa3 Ca C
The MuniOpportunity
The American Society of Civil Engineers (ASCE) regularly assesses the nation’s infrastructure - things like bridges,
airports, and drinking water - and scores it in a ‘report card’.
Municipal bonds are also quite popular with individual U.S. investors, as the interest income from most munici-pal bonds is not subject to federal income tax.
As a result, many local and state governments have been turning to taxable municipal bonds to �nance their infrastructure projects.
In the last decade, a lagging global economy led to historically low interest rates - many sovereign (national) bonds fell into negative territory. Consequent-ly, many investors sought enhanced yields by increasing corporate or emerg-ing-market credit risk.
Taxable municipal bonds provided an alternative source of yield potential:
Yields on AA taxable municipal bonds of 8 years or longer were 114 basis points higher than comparable Treasury yields.
This allocation is nothing new. State and local governments have traditionally shouldered the burden of U.S. infrastructure costs.
In order to fund such spending, state and local governments primarily rely on U.S. municipal bonds.
Taxable municipal bonds are an attractive investment for many reasons.
In addition to higher historical yields, the total returns of taxable U.S. municipal bonds
surpassed all but one major bond sector in the last decade.
Historically, municipal bond ratings have also been far more stable
than those of global corporates.
This means they help provide portfolio diversification and help manage volatility.
There are a few reasons for this stability:
The ASCE estimates that $4 trillion is needed to bring infrastructure up to a B grade.
Mostly below standard
Signi�cant deterioration
Strong risk of failure
To help meet this shortfall, the Trump administration has proposed a
$1.5 trillion planover 10 years.
$200 billionprovided by federal government
$1.3 trillionprovided by state and local governments, public-private partnerships (P3s)1
Source: Business Insider, February 12, 2018
Source: ASCE, 2017
Source: Congressional Budget Office, 2017
D+
State and Local Governments
Federal Government
Interestingly, these debt instruments are often aligned with sustainable development
WaterConservation
WindFarms
PublicEducation
Nonpro�tHospitals
PublicTransport
A�ordableHousing
Yieldmeasures the income that bonds pay on a monthly or quarterly basis.
Total returnis the combination of yield and the bond’s principal value �uctuation.
However, the U.S. tax codelimits the volume of non-taxable bonds issued and the purposes for issuing them.
Competitive Historical Yield and Strong Returns1
Most municipal bonds are high quality with low default rates, making them attractive to risk-conscious investors.
High Quality, Stable Credit Ratings2
The municipal bond market is highly fragmented, and most issues are too small to be included in a market index.
Still, the municipal bond index includes a whopping 53,000 issuers - almost 87% of all issuers in the U.S. bond index - though municipal bonds comprise less than 9% of the total U.S. bond debt by value.
Active investors have the potential to generate higher returns by applying their credit research and trading skills.
This market fragmentation, combined with limited sell-side research and many buy-and-hold investors, often leads to ine�cient pricing.
Institutional investors welcome this source of long-duration assets, as they can match them up with their long-dated obligations.
For example, a pension fund may invest in 30-year taxable municipals to help ensure it can pay guaranteed funds to its bene�ciaries over the same time frame.
As the U.S. begins to revitalize its infrastructure, taxable municipal bonds present a strong - and often overlooked - opportunity for investors.
Inef�cient Pricing3
Correlation measures the degree to which two securities move in relation to each other. In general, taxable municipal bonds have a low correlation to other �xed-income sectors.
Low Correlations4
Since taxable municipal bonds fund long-term capital projects, they are usually �nanced with longer maturing bonds.
Longer Durations
Taxable municipal bonds have many positive qualities that make them a strong contender for investment.
When added to a diversi�ed �xed-income portfolio, they have the potential to help improve the risk/return pro�le.
A CompellingPortfolio Addition
5
All data is from New York Life Investments unless otherwise stated. Footnotes:
1. Public-private partnership, or P3, is a contract between a governmental body and a private entity, with the goal of providing some public benefit, either an asset or a service.
2. Taxable Muni: ICE BofAML Broad US Taxable Municipal Securities Index; US Corp AA: ICE BofAML AA US Corporate Index; US Treasury: ICE BofAML US Treasury Index; Tax-Exempt Muni AA: ICE BofAML AA US Municipal Securities Index. Credit Ratings: S&P rates borrowers on a scale from AAA to D. AAA through BBB represent investment grade, while BB through D represent non-investment grade. Moody’s rates borrowers on a scale from Aaa through C. Aaa through Baa3 represent investment grade, while Ba1 through C represent non-investment grade. Past performance is no guarantee of future results.
3. US Corp HY: ICE BofAML US High Yield Index; Taxable Muni: ICE BofAML Taxable Municipal Index; Muni HY: Bloomberg Barclays Municipal High Yield Index; Emerging Mkts Sovereign: ICE BofAML Emerging Markets BBB & Lower Sovereign; Emerging Mkts Corp: ICE BofAML Emerging Markets Corporate Plus Index; US Corp IG: Bloomberg Barclays US Corp. Investment Grade; Leveraged Loan: S&P/LSTA Leveraged Loan Index; Muni IG: Bloomberg Barclays Municipal Investment Grade Index; US Agg: Bloomberg Barclays US Aggregate Index; US Securitized: Bloomberg Barclays US Securitized: MBS/ABS/CMBS; US Treasury: Bloomberg Barclays US Treasury Index; Agg ex US: Bloomberg Barclays Aggregate Ex-US Index.
4. Moody’s rates borrowers on a scale from Aaa through C. Aaa through Baa3 represent investment grade, while Ba1 through C represent non-investment grade. Credit Ratings: S&P rates borrowers on a scale from AAA to D. AAA through BBB represent investment grade, while BB through D represent non-investment grade. Past performance is no guarantee of future results.
5. Rating drift measures the net average number of notches a credit changes over the study period. It is defined as the average upgraded notches per issuer minus the average downgradednotches per issuer.
6. US Corp HY: ICE BofAML US High Yield Index; Pan-European Aggregate: Bloomberg Barclays Pan-European Aggregate Index; JPM GBI (World) USD: J.P. Morgan Global Bond Index (GBI Global Unhedged USD); U.S. Corp IG: Bloomberg Barclays US Corp. Investment Grade; U.S. Treasury: Bloomberg Barclays US Treasury Index; U.S. Agg: Bloomberg Barclays US Aggregate Index
7. Risk is measured by standard deviation. No representation is made as to the accuracy and completeness of information contained in this presentation that has been obtained from third parties. US Treasury: Bloomberg Barclays U.S. Intermediate Treasury Index; Investment Grade Credit: Bloomberg Barclays U.S. Credit Index; HY Corp: Bloomberg Barclays US Corporate High Yield Index; Taxable Munis: Bloomberg Barclays Municipal Index - Taxable Bonds.
“New York Life Investments” is both a service mark, and the common trade name, of the investment advisors affiliated with New York Life Insurance Company. The MainStay Funds® are managed by New York Life Investment Management LLC and distributed by NYLIFE Distributors LLC, 30 Hudson Street, Jersey City, NJ 07302, a wholly owned subsidiary of New York Life Insurance Company. NYLIFE Distributors LLC is a Member FINRA/SIPC.
New York Life, MainStay Investments, and their affiliates do not provide legal, accounting, or tax advice. You should obtain advice specific to your circumstances from your own legal, accounting, and tax advisors.
This material represents an assessment of the market environment as at a specific date; is subject to change; and is not intended to be a forecast of future events or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice regarding the funds or any issuer or security in particular.
This material contains general information only and does not take into account an individual's financial circumstances. This information should not be relied upon as a primary basis for an investment decision. Rather, an assessment should be made as to whether the information is appropriate in individual circumstances and consideration should be given to talking to a financial advisor before making an investment decision.
1823064 MS129-19 MS37mm-08/19
The sector’s 6.9% return beat the 4.6% return on U.S. corporate investment-grade bonds, a staple in most institutional portfolios.
6.9%
4.6%
Did You Know?
U.S. Municipals Global Corporates U.S. Recessions
Investment grade Non-investment grade
Over 76% rated A1 or better; tiny portion below investment grade
U.S. Municipals4
Only ~10% are AA rated;nearly half are below investment grade
0.81% for those rated BAA by S&P 0.84% for those rated AAA by S&P
Global Corporates
Rating Spread
Default Rate
Moody’s US Municipal Bond Defaults & Recoveries, 1970 – 2017. Source: Moody’s Investors Service.
Source: Moody’s US Municipal Bond Defaults and Recoveries 1970 – 2017;Moody’s Trends in Global Corporates Rating Transitions 1983 – 2017.
Yield-to-worst is the lowest potential yield that can be received without the issuer defaulting. Past performance is no guaranteeof future results, which will vary. It is not possible to invest directly in an index. Source: ICE BofAML, November 30, 2018
Past performance is no guarantee of future results, which will vary. It is not possible to invest directly in an index.
Source: municipals - S&P USPF Cumulative Average Default Rates 1986-2017; corporates - S&P US Corporate Average Cumulative Default Rates 1981-2017
June 30, 2008 – June 30, 2018. It is not possible to invest direct into an index. Source: Bloomberg Barclays Indices.
General obligation bonds are backed by the issuer’s full faith and credit. State and local governments can raise taxes as required.
Revenue bondsare backed by speci�c cash �ow streams including tolls and fees for essential services. Since many of these are virtual monopolies, prices can be raised without losing customers.
Indices by Numberof Issues
Outstanding U.S.Bond Debt ($U.S. billions)
57% of taxable municipal bonds have maturities of 10-25
16% of maturities exceed 25 years.
Municipal bonds are rarely a�ected by event risks such as leveraged buyouts.
In times of stress, municipal bond issuers have more options for covering their debt:
Why Taxable Municipal Bonds Are an Attractive Investment
Financing the
Source, number of issues: Bloomberg Barclays. Data as of March 31, 2018. Source, Outstanding US bond debt: The Securities Industry and Financial Markets Association (SIFMA), US Bond Market Issuance and Outstanding, October 4, 2018. Data as of June 30, 2018.
Source: eVestment. Past performance is no guarantee of future results, which will vary. It is not possible to invest directly in an index.
![Page 6: The Muni · 2019-12-10 · Water Conservation Wind Farms Public Education Nonpro˜t Hospitals Public Transport A˚ordable Housing Yield measures the income that bonds pay on a monthly](https://reader036.vdocument.in/reader036/viewer/2022081406/5f1335982990b34fdf0939ba/html5/thumbnails/6.jpg)
U.S. infrastructure is in a state of disrepair.
After decades of neglect, the U.S. only scored a D+ in 2017.
Presente d by
More than investing.Invested.
nylinvestments.com
visualcapitalist.com@visualcap/visualcapitalist
1956
1%
2%
3%
4%
5%Yield to Worst
Sep.2013
Muni HY
Taxable Muni
U.S. Corp HY
Emerging Mkts Sovereign
Emerging Mkts Corp
Leveraged Loan
U.S. Corp IG
Muni IG
U.S. Agg
U.S. Securitized
U.S. Treasury
Agg ex U.S.
Municipal
2% 4% 6% 8%
Mar.2014
Sep.2014
Mar.2015
Sep.2015
Mar.2016
Sep.2016
Mar.2017
Sep.2017
Mar.2018
Sep.2018
Nov.2018
Taxable MuniUS Corp AA
US TreasuryTax-ExemptMuni AA
1961 1966 1971 1976 1981 1986 1991 1996 2001 2006 2011 2016
$342billion
$98billion
$100b
$200b
$300b
$400b
Public Spending on Transportation and Water Infrastructure (2017 dollars)
The Yield Pick Up Is Compelling2
U.S. Corporate High Yield 0.10
0.22
0.43
0.56
0.62
0.71
Pan-European Aggregate
JPM GBI (World) USD
U.S. Corporate Investment Grade
U.S. Treasury
U.S. Aggregate
0.00 0.20 0.40 0.60 0.80 1.00
No correlation Perfect positivecorrelation
Correlation of Taxable Munis to Other Bond Sectors6
Taxable municipal investment-grade index
Maturity Distribution of Outstanding Bonds (in years)
US Treasury+ Investment Grade Credit+ High Yield Corp+ Taxable Munis
US Treasury+ Investment Grade Credit+ High Yield Corp
US Treasury+ Investment Grade Credit
Risk
Return13%
10%
7%
4%
1%
2% 4% 6% 8%
Portfolio Return on Risk (Gross of Fees)7
with Hypothetical Addition of Taxable Munis (Jan. 2009 - Sep. 2018)
1-3 years
3-5 years
5-7 years
7-10 years
10-25 years
25+ years
Taxable MunicipalsCorporates
Annualized Total Return Post-Financial Crisis (Dec. 31, 2009 - Dec. 20, 2018)3
Distribution of Credit Ratings
Moody’s Rating Drift 1984 - 20165
US $40.8 Trillion Market
U.S. Municipals Global Corporates
U.S. Foreign & Emerging Markets High Yield/Securitized
% Outstanding
Moody’s Average Rating
Rati
ngs
Vari
ance
25%
20%
15%
10%
5%
Aaa
-0.60
ABS Index 369
Municipal $3,853Treasury $14,972
Asset-Backed $1,507Money Markets $1,052Federal Agency Securities $1,900
Corporate Debt $9,074
Mortgage Related $9,482
MBS Index 320
Credit Index 6,374
Agency Index 491Treasury Index 258
Municipal Index 52,838
-0.40
-0.20
0.00
0.20
1984 1990 1996 2002 2008 2014 2016
Aa1 Aa2 Aa3 A1 A2 A3 Baa1 Baa2 Baa3 Ba1 Ba2 Ba3 B1 B2 B3 Caa1 Caa2 Caa3 Ca C
The MuniOpportunity
The American Society of Civil Engineers (ASCE) regularly assesses the nation’s infrastructure - things like bridges,
airports, and drinking water - and scores it in a ‘report card’.
Municipal bonds are also quite popular with individual U.S. investors, as the interest income from most munici-pal bonds is not subject to federal income tax.
As a result, many local and state governments have been turning to taxable municipal bonds to �nance their infrastructure projects.
In the last decade, a lagging global economy led to historically low interest rates - many sovereign (national) bonds fell into negative territory. Consequent-ly, many investors sought enhanced yields by increasing corporate or emerg-ing-market credit risk.
Taxable municipal bonds provided an alternative source of yield potential:
Yields on AA taxable municipal bonds of 8 years or longer were 114 basis points higher than comparable Treasury yields.
This allocation is nothing new. State and local governments have traditionally shouldered the burden of U.S. infrastructure costs.
In order to fund such spending, state and local governments primarily rely on U.S. municipal bonds.
Taxable municipal bonds are an attractive investment for many reasons.
In addition to higher historical yields, the total returns of taxable U.S. municipal bonds
surpassed all but one major bond sector in the last decade.
Historically, municipal bond ratings have also been far more stable
than those of global corporates.
This means they help provide portfolio diversification and help manage volatility.
There are a few reasons for this stability:
The ASCE estimates that $4 trillion is needed to bring infrastructure up to a B grade.
Mostly below standard
Signi�cant deterioration
Strong risk of failure
To help meet this shortfall, the Trump administration has proposed a
$1.5 trillion planover 10 years.
$200 billionprovided by federal government
$1.3 trillionprovided by state and local governments, public-private partnerships (P3s)1
Source: Business Insider, February 12, 2018
Source: ASCE, 2017
Source: Congressional Budget Office, 2017
D+
State and Local Governments
Federal Government
Interestingly, these debt instruments are often aligned with sustainable development
WaterConservation
WindFarms
PublicEducation
Nonpro�tHospitals
PublicTransport
A�ordableHousing
Yieldmeasures the income that bonds pay on a monthly or quarterly basis.
Total returnis the combination of yield and the bond’s principal value �uctuation.
However, the U.S. tax codelimits the volume of non-taxable bonds issued and the purposes for issuing them.
Competitive Historical Yield and Strong Returns1
Most municipal bonds are high quality with low default rates, making them attractive to risk-conscious investors.
High Quality, Stable Credit Ratings2
The municipal bond market is highly fragmented, and most issues are too small to be included in a market index.
Still, the municipal bond index includes a whopping 53,000 issuers - almost 87% of all issuers in the U.S. bond index - though municipal bonds comprise less than 9% of the total U.S. bond debt by value.
Active investors have the potential to generate higher returns by applying their credit research and trading skills.
This market fragmentation, combined with limited sell-side research and many buy-and-hold investors, often leads to ine�cient pricing.
Institutional investors welcome this source of long-duration assets, as they can match them up with their long-dated obligations.
For example, a pension fund may invest in 30-year taxable municipals to help ensure it can pay guaranteed funds to its bene�ciaries over the same time frame.
As the U.S. begins to revitalize its infrastructure, taxable municipal bonds present a strong - and often overlooked - opportunity for investors.
Inef�cient Pricing3
Correlation measures the degree to which two securities move in relation to each other. In general, taxable municipal bonds have a low correlation to other �xed-income sectors.
Low Correlations4
Since taxable municipal bonds fund long-term capital projects, they are usually �nanced with longer maturing bonds.
Longer Durations
Taxable municipal bonds have many positive qualities that make them a strong contender for investment.
When added to a diversi�ed �xed-income portfolio, they have the potential to help improve the risk/return pro�le.
A CompellingPortfolio Addition
5
All data is from New York Life Investments unless otherwise stated. Footnotes:
1. Public-private partnership, or P3, is a contract between a governmental body and a private entity, with the goal of providing some public benefit, either an asset or a service.
2. Taxable Muni: ICE BofAML Broad US Taxable Municipal Securities Index; US Corp AA: ICE BofAML AA US Corporate Index; US Treasury: ICE BofAML US Treasury Index; Tax-Exempt Muni AA: ICE BofAML AA US Municipal Securities Index. Credit Ratings: S&P rates borrowers on a scale from AAA to D. AAA through BBB represent investment grade, while BB through D represent non-investment grade. Moody’s rates borrowers on a scale from Aaa through C. Aaa through Baa3 represent investment grade, while Ba1 through C represent non-investment grade. Past performance is no guarantee of future results.
3. US Corp HY: ICE BofAML US High Yield Index; Taxable Muni: ICE BofAML Taxable Municipal Index; Muni HY: Bloomberg Barclays Municipal High Yield Index; Emerging Mkts Sovereign: ICE BofAML Emerging Markets BBB & Lower Sovereign; Emerging Mkts Corp: ICE BofAML Emerging Markets Corporate Plus Index; US Corp IG: Bloomberg Barclays US Corp. Investment Grade; Leveraged Loan: S&P/LSTA Leveraged Loan Index; Muni IG: Bloomberg Barclays Municipal Investment Grade Index; US Agg: Bloomberg Barclays US Aggregate Index; US Securitized: Bloomberg Barclays US Securitized: MBS/ABS/CMBS; US Treasury: Bloomberg Barclays US Treasury Index; Agg ex US: Bloomberg Barclays Aggregate Ex-US Index.
4. Moody’s rates borrowers on a scale from Aaa through C. Aaa through Baa3 represent investment grade, while Ba1 through C represent non-investment grade. Credit Ratings: S&P rates borrowers on a scale from AAA to D. AAA through BBB represent investment grade, while BB through D represent non-investment grade. Past performance is no guarantee of future results.
5. Rating drift measures the net average number of notches a credit changes over the study period. It is defined as the average upgraded notches per issuer minus the average downgradednotches per issuer.
6. US Corp HY: ICE BofAML US High Yield Index; Pan-European Aggregate: Bloomberg Barclays Pan-European Aggregate Index; JPM GBI (World) USD: J.P. Morgan Global Bond Index (GBI Global Unhedged USD); U.S. Corp IG: Bloomberg Barclays US Corp. Investment Grade; U.S. Treasury: Bloomberg Barclays US Treasury Index; U.S. Agg: Bloomberg Barclays US Aggregate Index
7. Risk is measured by standard deviation. No representation is made as to the accuracy and completeness of information contained in this presentation that has been obtained from third parties. US Treasury: Bloomberg Barclays U.S. Intermediate Treasury Index; Investment Grade Credit: Bloomberg Barclays U.S. Credit Index; HY Corp: Bloomberg Barclays US Corporate High Yield Index; Taxable Munis: Bloomberg Barclays Municipal Index - Taxable Bonds.
“New York Life Investments” is both a service mark, and the common trade name, of the investment advisors affiliated with New York Life Insurance Company. The MainStay Funds® are managed by New York Life Investment Management LLC and distributed by NYLIFE Distributors LLC, 30 Hudson Street, Jersey City, NJ 07302, a wholly owned subsidiary of New York Life Insurance Company. NYLIFE Distributors LLC is a Member FINRA/SIPC.
New York Life, MainStay Investments, and their affiliates do not provide legal, accounting, or tax advice. You should obtain advice specific to your circumstances from your own legal, accounting, and tax advisors.
This material represents an assessment of the market environment as at a specific date; is subject to change; and is not intended to be a forecast of future events or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice regarding the funds or any issuer or security in particular.
This material contains general information only and does not take into account an individual's financial circumstances. This information should not be relied upon as a primary basis for an investment decision. Rather, an assessment should be made as to whether the information is appropriate in individual circumstances and consideration should be given to talking to a financial advisor before making an investment decision.
1823064 MS129-19 MS37mm-08/19
The sector’s 6.9% return beat the 4.6% return on U.S. corporate investment-grade bonds, a staple in most institutional portfolios.
6.9%
4.6%
Did You Know?
U.S. Municipals Global Corporates U.S. Recessions
Investment grade Non-investment grade
Over 76% rated A1 or better; tiny portion below investment grade
U.S. Municipals4
Only ~10% are AA rated;nearly half are below investment grade
0.81% for those rated BAA by S&P 0.84% for those rated AAA by S&P
Global Corporates
Rating Spread
Default Rate
Moody’s US Municipal Bond Defaults & Recoveries, 1970 – 2017. Source: Moody’s Investors Service.
Source: Moody’s US Municipal Bond Defaults and Recoveries 1970 – 2017;Moody’s Trends in Global Corporates Rating Transitions 1983 – 2017.
Yield-to-worst is the lowest potential yield that can be received without the issuer defaulting. Past performance is no guaranteeof future results, which will vary. It is not possible to invest directly in an index. Source: ICE BofAML, November 30, 2018
Past performance is no guarantee of future results, which will vary. It is not possible to invest directly in an index.
Source: municipals - S&P USPF Cumulative Average Default Rates 1986-2017; corporates - S&P US Corporate Average Cumulative Default Rates 1981-2017
June 30, 2008 – June 30, 2018. It is not possible to invest direct into an index. Source: Bloomberg Barclays Indices.
General obligation bonds are backed by the issuer’s full faith and credit. State and local governments can raise taxes as required.
Revenue bondsare backed by speci�c cash �ow streams including tolls and fees for essential services. Since many of these are virtual monopolies, prices can be raised without losing customers.
Indices by Numberof Issues
Outstanding U.S.Bond Debt ($U.S. billions)
57% of taxable municipal bonds have maturities of 10-25
16% of maturities exceed 25 years.
Municipal bonds are rarely a�ected by event risks such as leveraged buyouts.
In times of stress, municipal bond issuers have more options for covering their debt:
Why Taxable Municipal Bonds Are an Attractive Investment
Financing the
Source, number of issues: Bloomberg Barclays. Data as of March 31, 2018. Source, Outstanding US bond debt: The Securities Industry and Financial Markets Association (SIFMA), US Bond Market Issuance and Outstanding, October 4, 2018. Data as of June 30, 2018.
Source: eVestment. Past performance is no guarantee of future results, which will vary. It is not possible to invest directly in an index.
![Page 7: The Muni · 2019-12-10 · Water Conservation Wind Farms Public Education Nonpro˜t Hospitals Public Transport A˚ordable Housing Yield measures the income that bonds pay on a monthly](https://reader036.vdocument.in/reader036/viewer/2022081406/5f1335982990b34fdf0939ba/html5/thumbnails/7.jpg)
U.S. infrastructure is in a state of disrepair.
After decades of neglect, the U.S. only scored a D+ in 2017.
Presente d by
More than investing.Invested.
nylinvestments.com
visualcapitalist.com@visualcap/visualcapitalist
1956
1%
2%
3%
4%
5%Yield to Worst
Sep.2013
Muni HY
Taxable Muni
U.S. Corp HY
Emerging Mkts Sovereign
Emerging Mkts Corp
Leveraged Loan
U.S. Corp IG
Muni IG
U.S. Agg
U.S. Securitized
U.S. Treasury
Agg ex U.S.
Municipal
2% 4% 6% 8%
Mar.2014
Sep.2014
Mar.2015
Sep.2015
Mar.2016
Sep.2016
Mar.2017
Sep.2017
Mar.2018
Sep.2018
Nov.2018
Taxable MuniUS Corp AA
US TreasuryTax-ExemptMuni AA
1961 1966 1971 1976 1981 1986 1991 1996 2001 2006 2011 2016
$342billion
$98billion
$100b
$200b
$300b
$400b
Public Spending on Transportation and Water Infrastructure (2017 dollars)
The Yield Pick Up Is Compelling2
U.S. Corporate High Yield 0.10
0.22
0.43
0.56
0.62
0.71
Pan-European Aggregate
JPM GBI (World) USD
U.S. Corporate Investment Grade
U.S. Treasury
U.S. Aggregate
0.00 0.20 0.40 0.60 0.80 1.00
No correlation Perfect positivecorrelation
Correlation of Taxable Munis to Other Bond Sectors6
Taxable municipal investment-grade index
Maturity Distribution of Outstanding Bonds (in years)
US Treasury+ Investment Grade Credit+ High Yield Corp+ Taxable Munis
US Treasury+ Investment Grade Credit+ High Yield Corp
US Treasury+ Investment Grade Credit
Risk
Return13%
10%
7%
4%
1%
2% 4% 6% 8%
Portfolio Return on Risk (Gross of Fees)7
with Hypothetical Addition of Taxable Munis (Jan. 2009 - Sep. 2018)
1-3 years
3-5 years
5-7 years
7-10 years
10-25 years
25+ years
Taxable MunicipalsCorporates
Annualized Total Return Post-Financial Crisis (Dec. 31, 2009 - Dec. 20, 2018)3
Distribution of Credit Ratings
Moody’s Rating Drift 1984 - 20165
US $40.8 Trillion Market
U.S. Municipals Global Corporates
U.S. Foreign & Emerging Markets High Yield/Securitized
% Outstanding
Moody’s Average Rating
Rati
ngs
Vari
ance
25%
20%
15%
10%
5%
Aaa
-0.60
ABS Index 369
Municipal $3,853Treasury $14,972
Asset-Backed $1,507Money Markets $1,052Federal Agency Securities $1,900
Corporate Debt $9,074
Mortgage Related $9,482
MBS Index 320
Credit Index 6,374
Agency Index 491Treasury Index 258
Municipal Index 52,838
-0.40
-0.20
0.00
0.20
1984 1990 1996 2002 2008 2014 2016
Aa1 Aa2 Aa3 A1 A2 A3 Baa1 Baa2 Baa3 Ba1 Ba2 Ba3 B1 B2 B3 Caa1 Caa2 Caa3 Ca C
The MuniOpportunity
The American Society of Civil Engineers (ASCE) regularly assesses the nation’s infrastructure - things like bridges,
airports, and drinking water - and scores it in a ‘report card’.
Municipal bonds are also quite popular with individual U.S. investors, as the interest income from most munici-pal bonds is not subject to federal income tax.
As a result, many local and state governments have been turning to taxable municipal bonds to �nance their infrastructure projects.
In the last decade, a lagging global economy led to historically low interest rates - many sovereign (national) bonds fell into negative territory. Consequent-ly, many investors sought enhanced yields by increasing corporate or emerg-ing-market credit risk.
Taxable municipal bonds provided an alternative source of yield potential:
Yields on AA taxable municipal bonds of 8 years or longer were 114 basis points higher than comparable Treasury yields.
This allocation is nothing new. State and local governments have traditionally shouldered the burden of U.S. infrastructure costs.
In order to fund such spending, state and local governments primarily rely on U.S. municipal bonds.
Taxable municipal bonds are an attractive investment for many reasons.
In addition to higher historical yields, the total returns of taxable U.S. municipal bonds
surpassed all but one major bond sector in the last decade.
Historically, municipal bond ratings have also been far more stable
than those of global corporates.
This means they help provide portfolio diversification and help manage volatility.
There are a few reasons for this stability:
The ASCE estimates that $4 trillion is needed to bring infrastructure up to a B grade.
Mostly below standard
Signi�cant deterioration
Strong risk of failure
To help meet this shortfall, the Trump administration has proposed a
$1.5 trillion planover 10 years.
$200 billionprovided by federal government
$1.3 trillionprovided by state and local governments, public-private partnerships (P3s)1
Source: Business Insider, February 12, 2018
Source: ASCE, 2017
Source: Congressional Budget Office, 2017
D+
State and Local Governments
Federal Government
Interestingly, these debt instruments are often aligned with sustainable development
WaterConservation
WindFarms
PublicEducation
Nonpro�tHospitals
PublicTransport
A�ordableHousing
Yieldmeasures the income that bonds pay on a monthly or quarterly basis.
Total returnis the combination of yield and the bond’s principal value �uctuation.
However, the U.S. tax codelimits the volume of non-taxable bonds issued and the purposes for issuing them.
Competitive Historical Yield and Strong Returns1
Most municipal bonds are high quality with low default rates, making them attractive to risk-conscious investors.
High Quality, Stable Credit Ratings2
The municipal bond market is highly fragmented, and most issues are too small to be included in a market index.
Still, the municipal bond index includes a whopping 53,000 issuers - almost 87% of all issuers in the U.S. bond index - though municipal bonds comprise less than 9% of the total U.S. bond debt by value.
Active investors have the potential to generate higher returns by applying their credit research and trading skills.
This market fragmentation, combined with limited sell-side research and many buy-and-hold investors, often leads to ine�cient pricing.
Institutional investors welcome this source of long-duration assets, as they can match them up with their long-dated obligations.
For example, a pension fund may invest in 30-year taxable municipals to help ensure it can pay guaranteed funds to its bene�ciaries over the same time frame.
As the U.S. begins to revitalize its infrastructure, taxable municipal bonds present a strong - and often overlooked - opportunity for investors.
Inef�cient Pricing3
Correlation measures the degree to which two securities move in relation to each other. In general, taxable municipal bonds have a low correlation to other �xed-income sectors.
Low Correlations4
Since taxable municipal bonds fund long-term capital projects, they are usually �nanced with longer maturing bonds.
Longer Durations
Taxable municipal bonds have many positive qualities that make them a strong contender for investment.
When added to a diversi�ed �xed-income portfolio, they have the potential to help improve the risk/return pro�le.
A CompellingPortfolio Addition
5
All data is from New York Life Investments unless otherwise stated. Footnotes:
1. Public-private partnership, or P3, is a contract between a governmental body and a private entity, with the goal of providing some public benefit, either an asset or a service.
2. Taxable Muni: ICE BofAML Broad US Taxable Municipal Securities Index; US Corp AA: ICE BofAML AA US Corporate Index; US Treasury: ICE BofAML US Treasury Index; Tax-Exempt Muni AA: ICE BofAML AA US Municipal Securities Index. Credit Ratings: S&P rates borrowers on a scale from AAA to D. AAA through BBB represent investment grade, while BB through D represent non-investment grade. Moody’s rates borrowers on a scale from Aaa through C. Aaa through Baa3 represent investment grade, while Ba1 through C represent non-investment grade. Past performance is no guarantee of future results.
3. US Corp HY: ICE BofAML US High Yield Index; Taxable Muni: ICE BofAML Taxable Municipal Index; Muni HY: Bloomberg Barclays Municipal High Yield Index; Emerging Mkts Sovereign: ICE BofAML Emerging Markets BBB & Lower Sovereign; Emerging Mkts Corp: ICE BofAML Emerging Markets Corporate Plus Index; US Corp IG: Bloomberg Barclays US Corp. Investment Grade; Leveraged Loan: S&P/LSTA Leveraged Loan Index; Muni IG: Bloomberg Barclays Municipal Investment Grade Index; US Agg: Bloomberg Barclays US Aggregate Index; US Securitized: Bloomberg Barclays US Securitized: MBS/ABS/CMBS; US Treasury: Bloomberg Barclays US Treasury Index; Agg ex US: Bloomberg Barclays Aggregate Ex-US Index.
4. Moody’s rates borrowers on a scale from Aaa through C. Aaa through Baa3 represent investment grade, while Ba1 through C represent non-investment grade. Credit Ratings: S&P rates borrowers on a scale from AAA to D. AAA through BBB represent investment grade, while BB through D represent non-investment grade. Past performance is no guarantee of future results.
5. Rating drift measures the net average number of notches a credit changes over the study period. It is defined as the average upgraded notches per issuer minus the average downgradednotches per issuer.
6. US Corp HY: ICE BofAML US High Yield Index; Pan-European Aggregate: Bloomberg Barclays Pan-European Aggregate Index; JPM GBI (World) USD: J.P. Morgan Global Bond Index (GBI Global Unhedged USD); U.S. Corp IG: Bloomberg Barclays US Corp. Investment Grade; U.S. Treasury: Bloomberg Barclays US Treasury Index; U.S. Agg: Bloomberg Barclays US Aggregate Index
7. Risk is measured by standard deviation. No representation is made as to the accuracy and completeness of information contained in this presentation that has been obtained from third parties. US Treasury: Bloomberg Barclays U.S. Intermediate Treasury Index; Investment Grade Credit: Bloomberg Barclays U.S. Credit Index; HY Corp: Bloomberg Barclays US Corporate High Yield Index; Taxable Munis: Bloomberg Barclays Municipal Index - Taxable Bonds.
“New York Life Investments” is both a service mark, and the common trade name, of the investment advisors affiliated with New York Life Insurance Company. The MainStay Funds® are managed by New York Life Investment Management LLC and distributed by NYLIFE Distributors LLC, 30 Hudson Street, Jersey City, NJ 07302, a wholly owned subsidiary of New York Life Insurance Company. NYLIFE Distributors LLC is a Member FINRA/SIPC.
New York Life, MainStay Investments, and their affiliates do not provide legal, accounting, or tax advice. You should obtain advice specific to your circumstances from your own legal, accounting, and tax advisors.
This material represents an assessment of the market environment as at a specific date; is subject to change; and is not intended to be a forecast of future events or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice regarding the funds or any issuer or security in particular.
This material contains general information only and does not take into account an individual's financial circumstances. This information should not be relied upon as a primary basis for an investment decision. Rather, an assessment should be made as to whether the information is appropriate in individual circumstances and consideration should be given to talking to a financial advisor before making an investment decision.
1823064 MS129-19 MS37mm-08/19
The sector’s 6.9% return beat the 4.6% return on U.S. corporate investment-grade bonds, a staple in most institutional portfolios.
6.9%
4.6%
Did You Know?
U.S. Municipals Global Corporates U.S. Recessions
Investment grade Non-investment grade
Over 76% rated A1 or better; tiny portion below investment grade
U.S. Municipals4
Only ~10% are AA rated;nearly half are below investment grade
0.81% for those rated BAA by S&P 0.84% for those rated AAA by S&P
Global Corporates
Rating Spread
Default Rate
Moody’s US Municipal Bond Defaults & Recoveries, 1970 – 2017. Source: Moody’s Investors Service.
Source: Moody’s US Municipal Bond Defaults and Recoveries 1970 – 2017;Moody’s Trends in Global Corporates Rating Transitions 1983 – 2017.
Yield-to-worst is the lowest potential yield that can be received without the issuer defaulting. Past performance is no guaranteeof future results, which will vary. It is not possible to invest directly in an index. Source: ICE BofAML, November 30, 2018
Past performance is no guarantee of future results, which will vary. It is not possible to invest directly in an index.
Source: municipals - S&P USPF Cumulative Average Default Rates 1986-2017; corporates - S&P US Corporate Average Cumulative Default Rates 1981-2017
June 30, 2008 – June 30, 2018. It is not possible to invest direct into an index. Source: Bloomberg Barclays Indices.
General obligation bonds are backed by the issuer’s full faith and credit. State and local governments can raise taxes as required.
Revenue bondsare backed by speci�c cash �ow streams including tolls and fees for essential services. Since many of these are virtual monopolies, prices can be raised without losing customers.
Indices by Numberof Issues
Outstanding U.S.Bond Debt ($U.S. billions)
57% of taxable municipal bonds have maturities of 10-25
16% of maturities exceed 25 years.
Municipal bonds are rarely a�ected by event risks such as leveraged buyouts.
In times of stress, municipal bond issuers have more options for covering their debt:
Why Taxable Municipal Bonds Are an Attractive Investment
Financing the
Source, number of issues: Bloomberg Barclays. Data as of March 31, 2018. Source, Outstanding US bond debt: The Securities Industry and Financial Markets Association (SIFMA), US Bond Market Issuance and Outstanding, October 4, 2018. Data as of June 30, 2018.
Source: eVestment. Past performance is no guarantee of future results, which will vary. It is not possible to invest directly in an index.
![Page 8: The Muni · 2019-12-10 · Water Conservation Wind Farms Public Education Nonpro˜t Hospitals Public Transport A˚ordable Housing Yield measures the income that bonds pay on a monthly](https://reader036.vdocument.in/reader036/viewer/2022081406/5f1335982990b34fdf0939ba/html5/thumbnails/8.jpg)
U.S. infrastructure is in a state of disrepair.
After decades of neglect, the U.S. only scored a D+ in 2017.
Presente d by
More than investing.Invested.
nylinvestments.com
visualcapitalist.com@visualcap/visualcapitalist
1956
1%
2%
3%
4%
5%Yield to Worst
Sep.2013
Muni HY
Taxable Muni
U.S. Corp HY
Emerging Mkts Sovereign
Emerging Mkts Corp
Leveraged Loan
U.S. Corp IG
Muni IG
U.S. Agg
U.S. Securitized
U.S. Treasury
Agg ex U.S.
Municipal
2% 4% 6% 8%
Mar.2014
Sep.2014
Mar.2015
Sep.2015
Mar.2016
Sep.2016
Mar.2017
Sep.2017
Mar.2018
Sep.2018
Nov.2018
Taxable MuniUS Corp AA
US TreasuryTax-ExemptMuni AA
1961 1966 1971 1976 1981 1986 1991 1996 2001 2006 2011 2016
$342billion
$98billion
$100b
$200b
$300b
$400b
Public Spending on Transportation and Water Infrastructure (2017 dollars)
The Yield Pick Up Is Compelling2
U.S. Corporate High Yield 0.10
0.22
0.43
0.56
0.62
0.71
Pan-European Aggregate
JPM GBI (World) USD
U.S. Corporate Investment Grade
U.S. Treasury
U.S. Aggregate
0.00 0.20 0.40 0.60 0.80 1.00
No correlation Perfect positivecorrelation
Correlation of Taxable Munis to Other Bond Sectors6
Taxable municipal investment-grade index
Maturity Distribution of Outstanding Bonds (in years)
US Treasury+ Investment Grade Credit+ High Yield Corp+ Taxable Munis
US Treasury+ Investment Grade Credit+ High Yield Corp
US Treasury+ Investment Grade Credit
Risk
Return13%
10%
7%
4%
1%
2% 4% 6% 8%
Portfolio Return on Risk (Gross of Fees)7
with Hypothetical Addition of Taxable Munis (Jan. 2009 - Sep. 2018)
1-3 years
3-5 years
5-7 years
7-10 years
10-25 years
25+ years
Taxable MunicipalsCorporates
Annualized Total Return Post-Financial Crisis (Dec. 31, 2009 - Dec. 20, 2018)3
Distribution of Credit Ratings
Moody’s Rating Drift 1984 - 20165
US $40.8 Trillion Market
U.S. Municipals Global Corporates
U.S. Foreign & Emerging Markets High Yield/Securitized
% Outstanding
Moody’s Average Rating
Rati
ngs
Vari
ance
25%
20%
15%
10%
5%
Aaa
-0.60
ABS Index 369
Municipal $3,853Treasury $14,972
Asset-Backed $1,507Money Markets $1,052Federal Agency Securities $1,900
Corporate Debt $9,074
Mortgage Related $9,482
MBS Index 320
Credit Index 6,374
Agency Index 491Treasury Index 258
Municipal Index 52,838
-0.40
-0.20
0.00
0.20
1984 1990 1996 2002 2008 2014 2016
Aa1 Aa2 Aa3 A1 A2 A3 Baa1 Baa2 Baa3 Ba1 Ba2 Ba3 B1 B2 B3 Caa1 Caa2 Caa3 Ca C
The MuniOpportunity
The American Society of Civil Engineers (ASCE) regularly assesses the nation’s infrastructure - things like bridges,
airports, and drinking water - and scores it in a ‘report card’.
Municipal bonds are also quite popular with individual U.S. investors, as the interest income from most munici-pal bonds is not subject to federal income tax.
As a result, many local and state governments have been turning to taxable municipal bonds to �nance their infrastructure projects.
In the last decade, a lagging global economy led to historically low interest rates - many sovereign (national) bonds fell into negative territory. Consequent-ly, many investors sought enhanced yields by increasing corporate or emerg-ing-market credit risk.
Taxable municipal bonds provided an alternative source of yield potential:
Yields on AA taxable municipal bonds of 8 years or longer were 114 basis points higher than comparable Treasury yields.
This allocation is nothing new. State and local governments have traditionally shouldered the burden of U.S. infrastructure costs.
In order to fund such spending, state and local governments primarily rely on U.S. municipal bonds.
Taxable municipal bonds are an attractive investment for many reasons.
In addition to higher historical yields, the total returns of taxable U.S. municipal bonds
surpassed all but one major bond sector in the last decade.
Historically, municipal bond ratings have also been far more stable
than those of global corporates.
This means they help provide portfolio diversification and help manage volatility.
There are a few reasons for this stability:
The ASCE estimates that $4 trillion is needed to bring infrastructure up to a B grade.
Mostly below standard
Signi�cant deterioration
Strong risk of failure
To help meet this shortfall, the Trump administration has proposed a
$1.5 trillion planover 10 years.
$200 billionprovided by federal government
$1.3 trillionprovided by state and local governments, public-private partnerships (P3s)1
Source: Business Insider, February 12, 2018
Source: ASCE, 2017
Source: Congressional Budget Office, 2017
D+
State and Local Governments
Federal Government
Interestingly, these debt instruments are often aligned with sustainable development
WaterConservation
WindFarms
PublicEducation
Nonpro�tHospitals
PublicTransport
A�ordableHousing
Yieldmeasures the income that bonds pay on a monthly or quarterly basis.
Total returnis the combination of yield and the bond’s principal value �uctuation.
However, the U.S. tax codelimits the volume of non-taxable bonds issued and the purposes for issuing them.
Competitive Historical Yield and Strong Returns1
Most municipal bonds are high quality with low default rates, making them attractive to risk-conscious investors.
High Quality, Stable Credit Ratings2
The municipal bond market is highly fragmented, and most issues are too small to be included in a market index.
Still, the municipal bond index includes a whopping 53,000 issuers - almost 87% of all issuers in the U.S. bond index - though municipal bonds comprise less than 9% of the total U.S. bond debt by value.
Active investors have the potential to generate higher returns by applying their credit research and trading skills.
This market fragmentation, combined with limited sell-side research and many buy-and-hold investors, often leads to ine�cient pricing.
Institutional investors welcome this source of long-duration assets, as they can match them up with their long-dated obligations.
For example, a pension fund may invest in 30-year taxable municipals to help ensure it can pay guaranteed funds to its bene�ciaries over the same time frame.
As the U.S. begins to revitalize its infrastructure, taxable municipal bonds present a strong - and often overlooked - opportunity for investors.
Inef�cient Pricing3
Correlation measures the degree to which two securities move in relation to each other. In general, taxable municipal bonds have a low correlation to other �xed-income sectors.
Low Correlations4
Since taxable municipal bonds fund long-term capital projects, they are usually �nanced with longer maturing bonds.
Longer Durations
Taxable municipal bonds have many positive qualities that make them a strong contender for investment.
When added to a diversi�ed �xed-income portfolio, they have the potential to help improve the risk/return pro�le.
A CompellingPortfolio Addition
5
All data is from New York Life Investments unless otherwise stated. Footnotes:
1. Public-private partnership, or P3, is a contract between a governmental body and a private entity, with the goal of providing some public benefit, either an asset or a service.
2. Taxable Muni: ICE BofAML Broad US Taxable Municipal Securities Index; US Corp AA: ICE BofAML AA US Corporate Index; US Treasury: ICE BofAML US Treasury Index; Tax-Exempt Muni AA: ICE BofAML AA US Municipal Securities Index. Credit Ratings: S&P rates borrowers on a scale from AAA to D. AAA through BBB represent investment grade, while BB through D represent non-investment grade. Moody’s rates borrowers on a scale from Aaa through C. Aaa through Baa3 represent investment grade, while Ba1 through C represent non-investment grade. Past performance is no guarantee of future results.
3. US Corp HY: ICE BofAML US High Yield Index; Taxable Muni: ICE BofAML Taxable Municipal Index; Muni HY: Bloomberg Barclays Municipal High Yield Index; Emerging Mkts Sovereign: ICE BofAML Emerging Markets BBB & Lower Sovereign; Emerging Mkts Corp: ICE BofAML Emerging Markets Corporate Plus Index; US Corp IG: Bloomberg Barclays US Corp. Investment Grade; Leveraged Loan: S&P/LSTA Leveraged Loan Index; Muni IG: Bloomberg Barclays Municipal Investment Grade Index; US Agg: Bloomberg Barclays US Aggregate Index; US Securitized: Bloomberg Barclays US Securitized: MBS/ABS/CMBS; US Treasury: Bloomberg Barclays US Treasury Index; Agg ex US: Bloomberg Barclays Aggregate Ex-US Index.
4. Moody’s rates borrowers on a scale from Aaa through C. Aaa through Baa3 represent investment grade, while Ba1 through C represent non-investment grade. Credit Ratings: S&P rates borrowers on a scale from AAA to D. AAA through BBB represent investment grade, while BB through D represent non-investment grade. Past performance is no guarantee of future results.
5. Rating drift measures the net average number of notches a credit changes over the study period. It is defined as the average upgraded notches per issuer minus the average downgradednotches per issuer.
6. US Corp HY: ICE BofAML US High Yield Index; Pan-European Aggregate: Bloomberg Barclays Pan-European Aggregate Index; JPM GBI (World) USD: J.P. Morgan Global Bond Index (GBI Global Unhedged USD); U.S. Corp IG: Bloomberg Barclays US Corp. Investment Grade; U.S. Treasury: Bloomberg Barclays US Treasury Index; U.S. Agg: Bloomberg Barclays US Aggregate Index
7. Risk is measured by standard deviation. No representation is made as to the accuracy and completeness of information contained in this presentation that has been obtained from third parties. US Treasury: Bloomberg Barclays U.S. Intermediate Treasury Index; Investment Grade Credit: Bloomberg Barclays U.S. Credit Index; HY Corp: Bloomberg Barclays US Corporate High Yield Index; Taxable Munis: Bloomberg Barclays Municipal Index - Taxable Bonds.
“New York Life Investments” is both a service mark, and the common trade name, of the investment advisors affiliated with New York Life Insurance Company. The MainStay Funds® are managed by New York Life Investment Management LLC and distributed by NYLIFE Distributors LLC, 30 Hudson Street, Jersey City, NJ 07302, a wholly owned subsidiary of New York Life Insurance Company. NYLIFE Distributors LLC is a Member FINRA/SIPC.
New York Life, MainStay Investments, and their affiliates do not provide legal, accounting, or tax advice. You should obtain advice specific to your circumstances from your own legal, accounting, and tax advisors.
This material represents an assessment of the market environment as at a specific date; is subject to change; and is not intended to be a forecast of future events or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice regarding the funds or any issuer or security in particular.
This material contains general information only and does not take into account an individual's financial circumstances. This information should not be relied upon as a primary basis for an investment decision. Rather, an assessment should be made as to whether the information is appropriate in individual circumstances and consideration should be given to talking to a financial advisor before making an investment decision.
1823064 MS129-19 MS37mm-08/19
The sector’s 6.9% return beat the 4.6% return on U.S. corporate investment-grade bonds, a staple in most institutional portfolios.
6.9%
4.6%
Did You Know?
U.S. Municipals Global Corporates U.S. Recessions
Investment grade Non-investment grade
Over 76% rated A1 or better; tiny portion below investment grade
U.S. Municipals4
Only ~10% are AA rated;nearly half are below investment grade
0.81% for those rated BAA by S&P 0.84% for those rated AAA by S&P
Global Corporates
Rating Spread
Default Rate
Moody’s US Municipal Bond Defaults & Recoveries, 1970 – 2017. Source: Moody’s Investors Service.
Source: Moody’s US Municipal Bond Defaults and Recoveries 1970 – 2017;Moody’s Trends in Global Corporates Rating Transitions 1983 – 2017.
Yield-to-worst is the lowest potential yield that can be received without the issuer defaulting. Past performance is no guaranteeof future results, which will vary. It is not possible to invest directly in an index. Source: ICE BofAML, November 30, 2018
Past performance is no guarantee of future results, which will vary. It is not possible to invest directly in an index.
Source: municipals - S&P USPF Cumulative Average Default Rates 1986-2017; corporates - S&P US Corporate Average Cumulative Default Rates 1981-2017
June 30, 2008 – June 30, 2018. It is not possible to invest direct into an index. Source: Bloomberg Barclays Indices.
General obligation bonds are backed by the issuer’s full faith and credit. State and local governments can raise taxes as required.
Revenue bondsare backed by speci�c cash �ow streams including tolls and fees for essential services. Since many of these are virtual monopolies, prices can be raised without losing customers.
Indices by Numberof Issues
Outstanding U.S.Bond Debt ($U.S. billions)
57% of taxable municipal bonds have maturities of 10-25
16% of maturities exceed 25 years.
Municipal bonds are rarely a�ected by event risks such as leveraged buyouts.
In times of stress, municipal bond issuers have more options for covering their debt:
Why Taxable Municipal Bonds Are an Attractive Investment
Financing the
Source, number of issues: Bloomberg Barclays. Data as of March 31, 2018. Source, Outstanding US bond debt: The Securities Industry and Financial Markets Association (SIFMA), US Bond Market Issuance and Outstanding, October 4, 2018. Data as of June 30, 2018.
Source: eVestment. Past performance is no guarantee of future results, which will vary. It is not possible to invest directly in an index.
![Page 9: The Muni · 2019-12-10 · Water Conservation Wind Farms Public Education Nonpro˜t Hospitals Public Transport A˚ordable Housing Yield measures the income that bonds pay on a monthly](https://reader036.vdocument.in/reader036/viewer/2022081406/5f1335982990b34fdf0939ba/html5/thumbnails/9.jpg)
U.S. infrastructure is in a state of disrepair.
After decades of neglect, the U.S. only scored a D+ in 2017.
Presente d by
More than investing.Invested.
nylinvestments.com
visualcapitalist.com@visualcap/visualcapitalist
1956
1%
2%
3%
4%
5%Yield to Worst
Sep.2013
Muni HY
Taxable Muni
U.S. Corp HY
Emerging Mkts Sovereign
Emerging Mkts Corp
Leveraged Loan
U.S. Corp IG
Muni IG
U.S. Agg
U.S. Securitized
U.S. Treasury
Agg ex U.S.
Municipal
2% 4% 6% 8%
Mar.2014
Sep.2014
Mar.2015
Sep.2015
Mar.2016
Sep.2016
Mar.2017
Sep.2017
Mar.2018
Sep.2018
Nov.2018
Taxable MuniUS Corp AA
US TreasuryTax-ExemptMuni AA
1961 1966 1971 1976 1981 1986 1991 1996 2001 2006 2011 2016
$342billion
$98billion
$100b
$200b
$300b
$400b
Public Spending on Transportation and Water Infrastructure (2017 dollars)
The Yield Pick Up Is Compelling2
U.S. Corporate High Yield 0.10
0.22
0.43
0.56
0.62
0.71
Pan-European Aggregate
JPM GBI (World) USD
U.S. Corporate Investment Grade
U.S. Treasury
U.S. Aggregate
0.00 0.20 0.40 0.60 0.80 1.00
No correlation Perfect positivecorrelation
Correlation of Taxable Munis to Other Bond Sectors6
Taxable municipal investment-grade index
Maturity Distribution of Outstanding Bonds (in years)
US Treasury+ Investment Grade Credit+ High Yield Corp+ Taxable Munis
US Treasury+ Investment Grade Credit+ High Yield Corp
US Treasury+ Investment Grade Credit
Risk
Return13%
10%
7%
4%
1%
2% 4% 6% 8%
Portfolio Return on Risk (Gross of Fees)7
with Hypothetical Addition of Taxable Munis (Jan. 2009 - Sep. 2018)
1-3 years
3-5 years
5-7 years
7-10 years
10-25 years
25+ years
Taxable MunicipalsCorporates
Annualized Total Return Post-Financial Crisis (Dec. 31, 2009 - Dec. 20, 2018)3
Distribution of Credit Ratings
Moody’s Rating Drift 1984 - 20165
US $40.8 Trillion Market
U.S. Municipals Global Corporates
U.S. Foreign & Emerging Markets High Yield/Securitized
% Outstanding
Moody’s Average Rating
Rati
ngs
Vari
ance
25%
20%
15%
10%
5%
Aaa
-0.60
ABS Index 369
Municipal $3,853Treasury $14,972
Asset-Backed $1,507Money Markets $1,052Federal Agency Securities $1,900
Corporate Debt $9,074
Mortgage Related $9,482
MBS Index 320
Credit Index 6,374
Agency Index 491Treasury Index 258
Municipal Index 52,838
-0.40
-0.20
0.00
0.20
1984 1990 1996 2002 2008 2014 2016
Aa1 Aa2 Aa3 A1 A2 A3 Baa1 Baa2 Baa3 Ba1 Ba2 Ba3 B1 B2 B3 Caa1 Caa2 Caa3 Ca C
The MuniOpportunity
The American Society of Civil Engineers (ASCE) regularly assesses the nation’s infrastructure - things like bridges,
airports, and drinking water - and scores it in a ‘report card’.
Municipal bonds are also quite popular with individual U.S. investors, as the interest income from most munici-pal bonds is not subject to federal income tax.
As a result, many local and state governments have been turning to taxable municipal bonds to �nance their infrastructure projects.
In the last decade, a lagging global economy led to historically low interest rates - many sovereign (national) bonds fell into negative territory. Consequent-ly, many investors sought enhanced yields by increasing corporate or emerg-ing-market credit risk.
Taxable municipal bonds provided an alternative source of yield potential:
Yields on AA taxable municipal bonds of 8 years or longer were 114 basis points higher than comparable Treasury yields.
This allocation is nothing new. State and local governments have traditionally shouldered the burden of U.S. infrastructure costs.
In order to fund such spending, state and local governments primarily rely on U.S. municipal bonds.
Taxable municipal bonds are an attractive investment for many reasons.
In addition to higher historical yields, the total returns of taxable U.S. municipal bonds
surpassed all but one major bond sector in the last decade.
Historically, municipal bond ratings have also been far more stable
than those of global corporates.
This means they help provide portfolio diversification and help manage volatility.
There are a few reasons for this stability:
The ASCE estimates that $4 trillion is needed to bring infrastructure up to a B grade.
Mostly below standard
Signi�cant deterioration
Strong risk of failure
To help meet this shortfall, the Trump administration has proposed a
$1.5 trillion planover 10 years.
$200 billionprovided by federal government
$1.3 trillionprovided by state and local governments, public-private partnerships (P3s)1
Source: Business Insider, February 12, 2018
Source: ASCE, 2017
Source: Congressional Budget Office, 2017
D+
State and Local Governments
Federal Government
Interestingly, these debt instruments are often aligned with sustainable development
WaterConservation
WindFarms
PublicEducation
Nonpro�tHospitals
PublicTransport
A�ordableHousing
Yieldmeasures the income that bonds pay on a monthly or quarterly basis.
Total returnis the combination of yield and the bond’s principal value �uctuation.
However, the U.S. tax codelimits the volume of non-taxable bonds issued and the purposes for issuing them.
Competitive Historical Yield and Strong Returns1
Most municipal bonds are high quality with low default rates, making them attractive to risk-conscious investors.
High Quality, Stable Credit Ratings2
The municipal bond market is highly fragmented, and most issues are too small to be included in a market index.
Still, the municipal bond index includes a whopping 53,000 issuers - almost 87% of all issuers in the U.S. bond index - though municipal bonds comprise less than 9% of the total U.S. bond debt by value.
Active investors have the potential to generate higher returns by applying their credit research and trading skills.
This market fragmentation, combined with limited sell-side research and many buy-and-hold investors, often leads to ine�cient pricing.
Institutional investors welcome this source of long-duration assets, as they can match them up with their long-dated obligations.
For example, a pension fund may invest in 30-year taxable municipals to help ensure it can pay guaranteed funds to its bene�ciaries over the same time frame.
As the U.S. begins to revitalize its infrastructure, taxable municipal bonds present a strong - and often overlooked - opportunity for investors.
Inef�cient Pricing3
Correlation measures the degree to which two securities move in relation to each other. In general, taxable municipal bonds have a low correlation to other �xed-income sectors.
Low Correlations4
Since taxable municipal bonds fund long-term capital projects, they are usually �nanced with longer maturing bonds.
Longer Durations
Taxable municipal bonds have many positive qualities that make them a strong contender for investment.
When added to a diversi�ed �xed-income portfolio, they have the potential to help improve the risk/return pro�le.
A CompellingPortfolio Addition
5
All data is from New York Life Investments unless otherwise stated. Footnotes:
1. Public-private partnership, or P3, is a contract between a governmental body and a private entity, with the goal of providing some public benefit, either an asset or a service.
2. Taxable Muni: ICE BofAML Broad US Taxable Municipal Securities Index; US Corp AA: ICE BofAML AA US Corporate Index; US Treasury: ICE BofAML US Treasury Index; Tax-Exempt Muni AA: ICE BofAML AA US Municipal Securities Index. Credit Ratings: S&P rates borrowers on a scale from AAA to D. AAA through BBB represent investment grade, while BB through D represent non-investment grade. Moody’s rates borrowers on a scale from Aaa through C. Aaa through Baa3 represent investment grade, while Ba1 through C represent non-investment grade. Past performance is no guarantee of future results.
3. US Corp HY: ICE BofAML US High Yield Index; Taxable Muni: ICE BofAML Taxable Municipal Index; Muni HY: Bloomberg Barclays Municipal High Yield Index; Emerging Mkts Sovereign: ICE BofAML Emerging Markets BBB & Lower Sovereign; Emerging Mkts Corp: ICE BofAML Emerging Markets Corporate Plus Index; US Corp IG: Bloomberg Barclays US Corp. Investment Grade; Leveraged Loan: S&P/LSTA Leveraged Loan Index; Muni IG: Bloomberg Barclays Municipal Investment Grade Index; US Agg: Bloomberg Barclays US Aggregate Index; US Securitized: Bloomberg Barclays US Securitized: MBS/ABS/CMBS; US Treasury: Bloomberg Barclays US Treasury Index; Agg ex US: Bloomberg Barclays Aggregate Ex-US Index.
4. Moody’s rates borrowers on a scale from Aaa through C. Aaa through Baa3 represent investment grade, while Ba1 through C represent non-investment grade. Credit Ratings: S&P rates borrowers on a scale from AAA to D. AAA through BBB represent investment grade, while BB through D represent non-investment grade. Past performance is no guarantee of future results.
5. Rating drift measures the net average number of notches a credit changes over the study period. It is defined as the average upgraded notches per issuer minus the average downgradednotches per issuer.
6. US Corp HY: ICE BofAML US High Yield Index; Pan-European Aggregate: Bloomberg Barclays Pan-European Aggregate Index; JPM GBI (World) USD: J.P. Morgan Global Bond Index (GBI Global Unhedged USD); U.S. Corp IG: Bloomberg Barclays US Corp. Investment Grade; U.S. Treasury: Bloomberg Barclays US Treasury Index; U.S. Agg: Bloomberg Barclays US Aggregate Index
7. Risk is measured by standard deviation. No representation is made as to the accuracy and completeness of information contained in this presentation that has been obtained from third parties. US Treasury: Bloomberg Barclays U.S. Intermediate Treasury Index; Investment Grade Credit: Bloomberg Barclays U.S. Credit Index; HY Corp: Bloomberg Barclays US Corporate High Yield Index; Taxable Munis: Bloomberg Barclays Municipal Index - Taxable Bonds.
“New York Life Investments” is both a service mark, and the common trade name, of the investment advisors affiliated with New York Life Insurance Company. The MainStay Funds® are managed by New York Life Investment Management LLC and distributed by NYLIFE Distributors LLC, 30 Hudson Street, Jersey City, NJ 07302, a wholly owned subsidiary of New York Life Insurance Company. NYLIFE Distributors LLC is a Member FINRA/SIPC.
New York Life, MainStay Investments, and their affiliates do not provide legal, accounting, or tax advice. You should obtain advice specific to your circumstances from your own legal, accounting, and tax advisors.
This material represents an assessment of the market environment as at a specific date; is subject to change; and is not intended to be a forecast of future events or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice regarding the funds or any issuer or security in particular.
This material contains general information only and does not take into account an individual's financial circumstances. This information should not be relied upon as a primary basis for an investment decision. Rather, an assessment should be made as to whether the information is appropriate in individual circumstances and consideration should be given to talking to a financial advisor before making an investment decision.
1823064 MS129-19 MS37mm-08/19
The sector’s 6.9% return beat the 4.6% return on U.S. corporate investment-grade bonds, a staple in most institutional portfolios.
6.9%
4.6%
Did You Know?
U.S. Municipals Global Corporates U.S. Recessions
Investment grade Non-investment grade
Over 76% rated A1 or better; tiny portion below investment grade
U.S. Municipals4
Only ~10% are AA rated;nearly half are below investment grade
0.81% for those rated BAA by S&P 0.84% for those rated AAA by S&P
Global Corporates
Rating Spread
Default Rate
Moody’s US Municipal Bond Defaults & Recoveries, 1970 – 2017. Source: Moody’s Investors Service.
Source: Moody’s US Municipal Bond Defaults and Recoveries 1970 – 2017;Moody’s Trends in Global Corporates Rating Transitions 1983 – 2017.
Yield-to-worst is the lowest potential yield that can be received without the issuer defaulting. Past performance is no guaranteeof future results, which will vary. It is not possible to invest directly in an index. Source: ICE BofAML, November 30, 2018
Past performance is no guarantee of future results, which will vary. It is not possible to invest directly in an index.
Source: municipals - S&P USPF Cumulative Average Default Rates 1986-2017; corporates - S&P US Corporate Average Cumulative Default Rates 1981-2017
June 30, 2008 – June 30, 2018. It is not possible to invest direct into an index. Source: Bloomberg Barclays Indices.
General obligation bonds are backed by the issuer’s full faith and credit. State and local governments can raise taxes as required.
Revenue bondsare backed by speci�c cash �ow streams including tolls and fees for essential services. Since many of these are virtual monopolies, prices can be raised without losing customers.
Indices by Numberof Issues
Outstanding U.S.Bond Debt ($U.S. billions)
57% of taxable municipal bonds have maturities of 10-25
16% of maturities exceed 25 years.
Municipal bonds are rarely a�ected by event risks such as leveraged buyouts.
In times of stress, municipal bond issuers have more options for covering their debt:
Why Taxable Municipal Bonds Are an Attractive Investment
Financing the
Source, number of issues: Bloomberg Barclays. Data as of March 31, 2018. Source, Outstanding US bond debt: The Securities Industry and Financial Markets Association (SIFMA), US Bond Market Issuance and Outstanding, October 4, 2018. Data as of June 30, 2018.
Source: eVestment. Past performance is no guarantee of future results, which will vary. It is not possible to invest directly in an index.
![Page 10: The Muni · 2019-12-10 · Water Conservation Wind Farms Public Education Nonpro˜t Hospitals Public Transport A˚ordable Housing Yield measures the income that bonds pay on a monthly](https://reader036.vdocument.in/reader036/viewer/2022081406/5f1335982990b34fdf0939ba/html5/thumbnails/10.jpg)
U.S. infrastructure is in a state of disrepair.
After decades of neglect, the U.S. only scored a D+ in 2017.
Presente d by
More than investing.Invested.
nylinvestments.com
visualcapitalist.com@visualcap/visualcapitalist
1956
1%
2%
3%
4%
5%Yield to Worst
Sep.2013
Muni HY
Taxable Muni
U.S. Corp HY
Emerging Mkts Sovereign
Emerging Mkts Corp
Leveraged Loan
U.S. Corp IG
Muni IG
U.S. Agg
U.S. Securitized
U.S. Treasury
Agg ex U.S.
Municipal
2% 4% 6% 8%
Mar.2014
Sep.2014
Mar.2015
Sep.2015
Mar.2016
Sep.2016
Mar.2017
Sep.2017
Mar.2018
Sep.2018
Nov.2018
Taxable MuniUS Corp AA
US TreasuryTax-ExemptMuni AA
1961 1966 1971 1976 1981 1986 1991 1996 2001 2006 2011 2016
$342billion
$98billion
$100b
$200b
$300b
$400b
Public Spending on Transportation and Water Infrastructure (2017 dollars)
The Yield Pick Up Is Compelling2
U.S. Corporate High Yield 0.10
0.22
0.43
0.56
0.62
0.71
Pan-European Aggregate
JPM GBI (World) USD
U.S. Corporate Investment Grade
U.S. Treasury
U.S. Aggregate
0.00 0.20 0.40 0.60 0.80 1.00
No correlation Perfect positivecorrelation
Correlation of Taxable Munis to Other Bond Sectors6
Taxable municipal investment-grade index
Maturity Distribution of Outstanding Bonds (in years)
US Treasury+ Investment Grade Credit+ High Yield Corp+ Taxable Munis
US Treasury+ Investment Grade Credit+ High Yield Corp
US Treasury+ Investment Grade Credit
Risk
Return13%
10%
7%
4%
1%
2% 4% 6% 8%
Portfolio Return on Risk (Gross of Fees)7
with Hypothetical Addition of Taxable Munis (Jan. 2009 - Sep. 2018)
1-3 years
3-5 years
5-7 years
7-10 years
10-25 years
25+ years
Taxable MunicipalsCorporates
Annualized Total Return Post-Financial Crisis (Dec. 31, 2009 - Dec. 20, 2018)3
Distribution of Credit Ratings
Moody’s Rating Drift 1984 - 20165
US $40.8 Trillion Market
U.S. Municipals Global Corporates
U.S. Foreign & Emerging Markets High Yield/Securitized
% Outstanding
Moody’s Average Rating
Rati
ngs
Vari
ance
25%
20%
15%
10%
5%
Aaa
-0.60
ABS Index 369
Municipal $3,853Treasury $14,972
Asset-Backed $1,507Money Markets $1,052Federal Agency Securities $1,900
Corporate Debt $9,074
Mortgage Related $9,482
MBS Index 320
Credit Index 6,374
Agency Index 491Treasury Index 258
Municipal Index 52,838
-0.40
-0.20
0.00
0.20
1984 1990 1996 2002 2008 2014 2016
Aa1 Aa2 Aa3 A1 A2 A3 Baa1 Baa2 Baa3 Ba1 Ba2 Ba3 B1 B2 B3 Caa1 Caa2 Caa3 Ca C
The MuniOpportunity
The American Society of Civil Engineers (ASCE) regularly assesses the nation’s infrastructure - things like bridges,
airports, and drinking water - and scores it in a ‘report card’.
Municipal bonds are also quite popular with individual U.S. investors, as the interest income from most munici-pal bonds is not subject to federal income tax.
As a result, many local and state governments have been turning to taxable municipal bonds to �nance their infrastructure projects.
In the last decade, a lagging global economy led to historically low interest rates - many sovereign (national) bonds fell into negative territory. Consequent-ly, many investors sought enhanced yields by increasing corporate or emerg-ing-market credit risk.
Taxable municipal bonds provided an alternative source of yield potential:
Yields on AA taxable municipal bonds of 8 years or longer were 114 basis points higher than comparable Treasury yields.
This allocation is nothing new. State and local governments have traditionally shouldered the burden of U.S. infrastructure costs.
In order to fund such spending, state and local governments primarily rely on U.S. municipal bonds.
Taxable municipal bonds are an attractive investment for many reasons.
In addition to higher historical yields, the total returns of taxable U.S. municipal bonds
surpassed all but one major bond sector in the last decade.
Historically, municipal bond ratings have also been far more stable
than those of global corporates.
This means they help provide portfolio diversification and help manage volatility.
There are a few reasons for this stability:
The ASCE estimates that $4 trillion is needed to bring infrastructure up to a B grade.
Mostly below standard
Signi�cant deterioration
Strong risk of failure
To help meet this shortfall, the Trump administration has proposed a
$1.5 trillion planover 10 years.
$200 billionprovided by federal government
$1.3 trillionprovided by state and local governments, public-private partnerships (P3s)1
Source: Business Insider, February 12, 2018
Source: ASCE, 2017
Source: Congressional Budget Office, 2017
D+
State and Local Governments
Federal Government
Interestingly, these debt instruments are often aligned with sustainable development
WaterConservation
WindFarms
PublicEducation
Nonpro�tHospitals
PublicTransport
A�ordableHousing
Yieldmeasures the income that bonds pay on a monthly or quarterly basis.
Total returnis the combination of yield and the bond’s principal value �uctuation.
However, the U.S. tax codelimits the volume of non-taxable bonds issued and the purposes for issuing them.
Competitive Historical Yield and Strong Returns1
Most municipal bonds are high quality with low default rates, making them attractive to risk-conscious investors.
High Quality, Stable Credit Ratings2
The municipal bond market is highly fragmented, and most issues are too small to be included in a market index.
Still, the municipal bond index includes a whopping 53,000 issuers - almost 87% of all issuers in the U.S. bond index - though municipal bonds comprise less than 9% of the total U.S. bond debt by value.
Active investors have the potential to generate higher returns by applying their credit research and trading skills.
This market fragmentation, combined with limited sell-side research and many buy-and-hold investors, often leads to ine�cient pricing.
Institutional investors welcome this source of long-duration assets, as they can match them up with their long-dated obligations.
For example, a pension fund may invest in 30-year taxable municipals to help ensure it can pay guaranteed funds to its bene�ciaries over the same time frame.
As the U.S. begins to revitalize its infrastructure, taxable municipal bonds present a strong - and often overlooked - opportunity for investors.
Inef�cient Pricing3
Correlation measures the degree to which two securities move in relation to each other. In general, taxable municipal bonds have a low correlation to other �xed-income sectors.
Low Correlations4
Since taxable municipal bonds fund long-term capital projects, they are usually �nanced with longer maturing bonds.
Longer Durations
Taxable municipal bonds have many positive qualities that make them a strong contender for investment.
When added to a diversi�ed �xed-income portfolio, they have the potential to help improve the risk/return pro�le.
A CompellingPortfolio Addition
5
All data is from New York Life Investments unless otherwise stated. Footnotes:
1. Public-private partnership, or P3, is a contract between a governmental body and a private entity, with the goal of providing some public benefit, either an asset or a service.
2. Taxable Muni: ICE BofAML Broad US Taxable Municipal Securities Index; US Corp AA: ICE BofAML AA US Corporate Index; US Treasury: ICE BofAML US Treasury Index; Tax-Exempt Muni AA: ICE BofAML AA US Municipal Securities Index. Credit Ratings: S&P rates borrowers on a scale from AAA to D. AAA through BBB represent investment grade, while BB through D represent non-investment grade. Moody’s rates borrowers on a scale from Aaa through C. Aaa through Baa3 represent investment grade, while Ba1 through C represent non-investment grade. Past performance is no guarantee of future results.
3. US Corp HY: ICE BofAML US High Yield Index; Taxable Muni: ICE BofAML Taxable Municipal Index; Muni HY: Bloomberg Barclays Municipal High Yield Index; Emerging Mkts Sovereign: ICE BofAML Emerging Markets BBB & Lower Sovereign; Emerging Mkts Corp: ICE BofAML Emerging Markets Corporate Plus Index; US Corp IG: Bloomberg Barclays US Corp. Investment Grade; Leveraged Loan: S&P/LSTA Leveraged Loan Index; Muni IG: Bloomberg Barclays Municipal Investment Grade Index; US Agg: Bloomberg Barclays US Aggregate Index; US Securitized: Bloomberg Barclays US Securitized: MBS/ABS/CMBS; US Treasury: Bloomberg Barclays US Treasury Index; Agg ex US: Bloomberg Barclays Aggregate Ex-US Index.
4. Moody’s rates borrowers on a scale from Aaa through C. Aaa through Baa3 represent investment grade, while Ba1 through C represent non-investment grade. Credit Ratings: S&P rates borrowers on a scale from AAA to D. AAA through BBB represent investment grade, while BB through D represent non-investment grade. Past performance is no guarantee of future results.
5. Rating drift measures the net average number of notches a credit changes over the study period. It is defined as the average upgraded notches per issuer minus the average downgradednotches per issuer.
6. US Corp HY: ICE BofAML US High Yield Index; Pan-European Aggregate: Bloomberg Barclays Pan-European Aggregate Index; JPM GBI (World) USD: J.P. Morgan Global Bond Index (GBI Global Unhedged USD); U.S. Corp IG: Bloomberg Barclays US Corp. Investment Grade; U.S. Treasury: Bloomberg Barclays US Treasury Index; U.S. Agg: Bloomberg Barclays US Aggregate Index
7. Risk is measured by standard deviation. No representation is made as to the accuracy and completeness of information contained in this presentation that has been obtained from third parties. US Treasury: Bloomberg Barclays U.S. Intermediate Treasury Index; Investment Grade Credit: Bloomberg Barclays U.S. Credit Index; HY Corp: Bloomberg Barclays US Corporate High Yield Index; Taxable Munis: Bloomberg Barclays Municipal Index - Taxable Bonds.
“New York Life Investments” is both a service mark, and the common trade name, of the investment advisors affiliated with New York Life Insurance Company. The MainStay Funds® are managed by New York Life Investment Management LLC and distributed by NYLIFE Distributors LLC, 30 Hudson Street, Jersey City, NJ 07302, a wholly owned subsidiary of New York Life Insurance Company. NYLIFE Distributors LLC is a Member FINRA/SIPC.
New York Life, MainStay Investments, and their affiliates do not provide legal, accounting, or tax advice. You should obtain advice specific to your circumstances from your own legal, accounting, and tax advisors.
This material represents an assessment of the market environment as at a specific date; is subject to change; and is not intended to be a forecast of future events or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice regarding the funds or any issuer or security in particular.
This material contains general information only and does not take into account an individual's financial circumstances. This information should not be relied upon as a primary basis for an investment decision. Rather, an assessment should be made as to whether the information is appropriate in individual circumstances and consideration should be given to talking to a financial advisor before making an investment decision.
1823064 MS129-19 MS37mm-08/19
The sector’s 6.9% return beat the 4.6% return on U.S. corporate investment-grade bonds, a staple in most institutional portfolios.
6.9%
4.6%
Did You Know?
U.S. Municipals Global Corporates U.S. Recessions
Investment grade Non-investment grade
Over 76% rated A1 or better; tiny portion below investment grade
U.S. Municipals4
Only ~10% are AA rated;nearly half are below investment grade
0.81% for those rated BAA by S&P 0.84% for those rated AAA by S&P
Global Corporates
Rating Spread
Default Rate
Moody’s US Municipal Bond Defaults & Recoveries, 1970 – 2017. Source: Moody’s Investors Service.
Source: Moody’s US Municipal Bond Defaults and Recoveries 1970 – 2017;Moody’s Trends in Global Corporates Rating Transitions 1983 – 2017.
Yield-to-worst is the lowest potential yield that can be received without the issuer defaulting. Past performance is no guaranteeof future results, which will vary. It is not possible to invest directly in an index. Source: ICE BofAML, November 30, 2018
Past performance is no guarantee of future results, which will vary. It is not possible to invest directly in an index.
Source: municipals - S&P USPF Cumulative Average Default Rates 1986-2017; corporates - S&P US Corporate Average Cumulative Default Rates 1981-2017
June 30, 2008 – June 30, 2018. It is not possible to invest direct into an index. Source: Bloomberg Barclays Indices.
General obligation bonds are backed by the issuer’s full faith and credit. State and local governments can raise taxes as required.
Revenue bondsare backed by speci�c cash �ow streams including tolls and fees for essential services. Since many of these are virtual monopolies, prices can be raised without losing customers.
Indices by Numberof Issues
Outstanding U.S.Bond Debt ($U.S. billions)
57% of taxable municipal bonds have maturities of 10-25
16% of maturities exceed 25 years.
Municipal bonds are rarely a�ected by event risks such as leveraged buyouts.
In times of stress, municipal bond issuers have more options for covering their debt:
Why Taxable Municipal Bonds Are an Attractive Investment
Financing the
Source, number of issues: Bloomberg Barclays. Data as of March 31, 2018. Source, Outstanding US bond debt: The Securities Industry and Financial Markets Association (SIFMA), US Bond Market Issuance and Outstanding, October 4, 2018. Data as of June 30, 2018.
Source: eVestment. Past performance is no guarantee of future results, which will vary. It is not possible to invest directly in an index.
![Page 11: The Muni · 2019-12-10 · Water Conservation Wind Farms Public Education Nonpro˜t Hospitals Public Transport A˚ordable Housing Yield measures the income that bonds pay on a monthly](https://reader036.vdocument.in/reader036/viewer/2022081406/5f1335982990b34fdf0939ba/html5/thumbnails/11.jpg)
U.S. infrastructure is in a state of disrepair.
After decades of neglect, the U.S. only scored a D+ in 2017.
Presente d by
More than investing.Invested.
nylinvestments.com
visualcapitalist.com@visualcap/visualcapitalist
1956
1%
2%
3%
4%
5%Yield to Worst
Sep.2013
Muni HY
Taxable Muni
U.S. Corp HY
Emerging Mkts Sovereign
Emerging Mkts Corp
Leveraged Loan
U.S. Corp IG
Muni IG
U.S. Agg
U.S. Securitized
U.S. Treasury
Agg ex U.S.
Municipal
2% 4% 6% 8%
Mar.2014
Sep.2014
Mar.2015
Sep.2015
Mar.2016
Sep.2016
Mar.2017
Sep.2017
Mar.2018
Sep.2018
Nov.2018
Taxable MuniUS Corp AA
US TreasuryTax-ExemptMuni AA
1961 1966 1971 1976 1981 1986 1991 1996 2001 2006 2011 2016
$342billion
$98billion
$100b
$200b
$300b
$400b
Public Spending on Transportation and Water Infrastructure (2017 dollars)
The Yield Pick Up Is Compelling2
U.S. Corporate High Yield 0.10
0.22
0.43
0.56
0.62
0.71
Pan-European Aggregate
JPM GBI (World) USD
U.S. Corporate Investment Grade
U.S. Treasury
U.S. Aggregate
0.00 0.20 0.40 0.60 0.80 1.00
No correlation Perfect positivecorrelation
Correlation of Taxable Munis to Other Bond Sectors6
Taxable municipal investment-grade index
Maturity Distribution of Outstanding Bonds (in years)
US Treasury+ Investment Grade Credit+ High Yield Corp+ Taxable Munis
US Treasury+ Investment Grade Credit+ High Yield Corp
US Treasury+ Investment Grade Credit
Risk
Return13%
10%
7%
4%
1%
2% 4% 6% 8%
Portfolio Return on Risk (Gross of Fees)7
with Hypothetical Addition of Taxable Munis (Jan. 2009 - Sep. 2018)
1-3 years
3-5 years
5-7 years
7-10 years
10-25 years
25+ years
Taxable MunicipalsCorporates
Annualized Total Return Post-Financial Crisis (Dec. 31, 2009 - Dec. 20, 2018)3
Distribution of Credit Ratings
Moody’s Rating Drift 1984 - 20165
US $40.8 Trillion Market
U.S. Municipals Global Corporates
U.S. Foreign & Emerging Markets High Yield/Securitized
% Outstanding
Moody’s Average Rating
Rati
ngs
Vari
ance
25%
20%
15%
10%
5%
Aaa
-0.60
ABS Index 369
Municipal $3,853Treasury $14,972
Asset-Backed $1,507Money Markets $1,052Federal Agency Securities $1,900
Corporate Debt $9,074
Mortgage Related $9,482
MBS Index 320
Credit Index 6,374
Agency Index 491Treasury Index 258
Municipal Index 52,838
-0.40
-0.20
0.00
0.20
1984 1990 1996 2002 2008 2014 2016
Aa1 Aa2 Aa3 A1 A2 A3 Baa1 Baa2 Baa3 Ba1 Ba2 Ba3 B1 B2 B3 Caa1 Caa2 Caa3 Ca C
The MuniOpportunity
The American Society of Civil Engineers (ASCE) regularly assesses the nation’s infrastructure - things like bridges,
airports, and drinking water - and scores it in a ‘report card’.
Municipal bonds are also quite popular with individual U.S. investors, as the interest income from most munici-pal bonds is not subject to federal income tax.
As a result, many local and state governments have been turning to taxable municipal bonds to �nance their infrastructure projects.
In the last decade, a lagging global economy led to historically low interest rates - many sovereign (national) bonds fell into negative territory. Consequent-ly, many investors sought enhanced yields by increasing corporate or emerg-ing-market credit risk.
Taxable municipal bonds provided an alternative source of yield potential:
Yields on AA taxable municipal bonds of 8 years or longer were 114 basis points higher than comparable Treasury yields.
This allocation is nothing new. State and local governments have traditionally shouldered the burden of U.S. infrastructure costs.
In order to fund such spending, state and local governments primarily rely on U.S. municipal bonds.
Taxable municipal bonds are an attractive investment for many reasons.
In addition to higher historical yields, the total returns of taxable U.S. municipal bonds
surpassed all but one major bond sector in the last decade.
Historically, municipal bond ratings have also been far more stable
than those of global corporates.
This means they help provide portfolio diversification and help manage volatility.
There are a few reasons for this stability:
The ASCE estimates that $4 trillion is needed to bring infrastructure up to a B grade.
Mostly below standard
Signi�cant deterioration
Strong risk of failure
To help meet this shortfall, the Trump administration has proposed a
$1.5 trillion planover 10 years.
$200 billionprovided by federal government
$1.3 trillionprovided by state and local governments, public-private partnerships (P3s)1
Source: Business Insider, February 12, 2018
Source: ASCE, 2017
Source: Congressional Budget Office, 2017
D+
State and Local Governments
Federal Government
Interestingly, these debt instruments are often aligned with sustainable development
WaterConservation
WindFarms
PublicEducation
Nonpro�tHospitals
PublicTransport
A�ordableHousing
Yieldmeasures the income that bonds pay on a monthly or quarterly basis.
Total returnis the combination of yield and the bond’s principal value �uctuation.
However, the U.S. tax codelimits the volume of non-taxable bonds issued and the purposes for issuing them.
Competitive Historical Yield and Strong Returns1
Most municipal bonds are high quality with low default rates, making them attractive to risk-conscious investors.
High Quality, Stable Credit Ratings2
The municipal bond market is highly fragmented, and most issues are too small to be included in a market index.
Still, the municipal bond index includes a whopping 53,000 issuers - almost 87% of all issuers in the U.S. bond index - though municipal bonds comprise less than 9% of the total U.S. bond debt by value.
Active investors have the potential to generate higher returns by applying their credit research and trading skills.
This market fragmentation, combined with limited sell-side research and many buy-and-hold investors, often leads to ine�cient pricing.
Institutional investors welcome this source of long-duration assets, as they can match them up with their long-dated obligations.
For example, a pension fund may invest in 30-year taxable municipals to help ensure it can pay guaranteed funds to its bene�ciaries over the same time frame.
As the U.S. begins to revitalize its infrastructure, taxable municipal bonds present a strong - and often overlooked - opportunity for investors.
Inef�cient Pricing3
Correlation measures the degree to which two securities move in relation to each other. In general, taxable municipal bonds have a low correlation to other �xed-income sectors.
Low Correlations4
Since taxable municipal bonds fund long-term capital projects, they are usually �nanced with longer maturing bonds.
Longer Durations
Taxable municipal bonds have many positive qualities that make them a strong contender for investment.
When added to a diversi�ed �xed-income portfolio, they have the potential to help improve the risk/return pro�le.
A CompellingPortfolio Addition
5
All data is from New York Life Investments unless otherwise stated. Footnotes:
1. Public-private partnership, or P3, is a contract between a governmental body and a private entity, with the goal of providing some public benefit, either an asset or a service.
2. Taxable Muni: ICE BofAML Broad US Taxable Municipal Securities Index; US Corp AA: ICE BofAML AA US Corporate Index; US Treasury: ICE BofAML US Treasury Index; Tax-Exempt Muni AA: ICE BofAML AA US Municipal Securities Index. Credit Ratings: S&P rates borrowers on a scale from AAA to D. AAA through BBB represent investment grade, while BB through D represent non-investment grade. Moody’s rates borrowers on a scale from Aaa through C. Aaa through Baa3 represent investment grade, while Ba1 through C represent non-investment grade. Past performance is no guarantee of future results.
3. US Corp HY: ICE BofAML US High Yield Index; Taxable Muni: ICE BofAML Taxable Municipal Index; Muni HY: Bloomberg Barclays Municipal High Yield Index; Emerging Mkts Sovereign: ICE BofAML Emerging Markets BBB & Lower Sovereign; Emerging Mkts Corp: ICE BofAML Emerging Markets Corporate Plus Index; US Corp IG: Bloomberg Barclays US Corp. Investment Grade; Leveraged Loan: S&P/LSTA Leveraged Loan Index; Muni IG: Bloomberg Barclays Municipal Investment Grade Index; US Agg: Bloomberg Barclays US Aggregate Index; US Securitized: Bloomberg Barclays US Securitized: MBS/ABS/CMBS; US Treasury: Bloomberg Barclays US Treasury Index; Agg ex US: Bloomberg Barclays Aggregate Ex-US Index.
4. Moody’s rates borrowers on a scale from Aaa through C. Aaa through Baa3 represent investment grade, while Ba1 through C represent non-investment grade. Credit Ratings: S&P rates borrowers on a scale from AAA to D. AAA through BBB represent investment grade, while BB through D represent non-investment grade. Past performance is no guarantee of future results.
5. Rating drift measures the net average number of notches a credit changes over the study period. It is defined as the average upgraded notches per issuer minus the average downgradednotches per issuer.
6. US Corp HY: ICE BofAML US High Yield Index; Pan-European Aggregate: Bloomberg Barclays Pan-European Aggregate Index; JPM GBI (World) USD: J.P. Morgan Global Bond Index (GBI Global Unhedged USD); U.S. Corp IG: Bloomberg Barclays US Corp. Investment Grade; U.S. Treasury: Bloomberg Barclays US Treasury Index; U.S. Agg: Bloomberg Barclays US Aggregate Index
7. Risk is measured by standard deviation. No representation is made as to the accuracy and completeness of information contained in this presentation that has been obtained from third parties. US Treasury: Bloomberg Barclays U.S. Intermediate Treasury Index; Investment Grade Credit: Bloomberg Barclays U.S. Credit Index; HY Corp: Bloomberg Barclays US Corporate High Yield Index; Taxable Munis: Bloomberg Barclays Municipal Index - Taxable Bonds.
“New York Life Investments” is both a service mark, and the common trade name, of the investment advisors affiliated with New York Life Insurance Company. The MainStay Funds® are managed by New York Life Investment Management LLC and distributed by NYLIFE Distributors LLC, 30 Hudson Street, Jersey City, NJ 07302, a wholly owned subsidiary of New York Life Insurance Company. NYLIFE Distributors LLC is a Member FINRA/SIPC.
New York Life, MainStay Investments, and their affiliates do not provide legal, accounting, or tax advice. You should obtain advice specific to your circumstances from your own legal, accounting, and tax advisors.
This material represents an assessment of the market environment as at a specific date; is subject to change; and is not intended to be a forecast of future events or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice regarding the funds or any issuer or security in particular.
This material contains general information only and does not take into account an individual's financial circumstances. This information should not be relied upon as a primary basis for an investment decision. Rather, an assessment should be made as to whether the information is appropriate in individual circumstances and consideration should be given to talking to a financial advisor before making an investment decision.
1823064 MS129-19 MS37mm-08/19
The sector’s 6.9% return beat the 4.6% return on U.S. corporate investment-grade bonds, a staple in most institutional portfolios.
6.9%
4.6%
Did You Know?
U.S. Municipals Global Corporates U.S. Recessions
Investment grade Non-investment grade
Over 76% rated A1 or better; tiny portion below investment grade
U.S. Municipals4
Only ~10% are AA rated;nearly half are below investment grade
0.81% for those rated BAA by S&P 0.84% for those rated AAA by S&P
Global Corporates
Rating Spread
Default Rate
Moody’s US Municipal Bond Defaults & Recoveries, 1970 – 2017. Source: Moody’s Investors Service.
Source: Moody’s US Municipal Bond Defaults and Recoveries 1970 – 2017;Moody’s Trends in Global Corporates Rating Transitions 1983 – 2017.
Yield-to-worst is the lowest potential yield that can be received without the issuer defaulting. Past performance is no guaranteeof future results, which will vary. It is not possible to invest directly in an index. Source: ICE BofAML, November 30, 2018
Past performance is no guarantee of future results, which will vary. It is not possible to invest directly in an index.
Source: municipals - S&P USPF Cumulative Average Default Rates 1986-2017; corporates - S&P US Corporate Average Cumulative Default Rates 1981-2017
June 30, 2008 – June 30, 2018. It is not possible to invest direct into an index. Source: Bloomberg Barclays Indices.
General obligation bonds are backed by the issuer’s full faith and credit. State and local governments can raise taxes as required.
Revenue bondsare backed by speci�c cash �ow streams including tolls and fees for essential services. Since many of these are virtual monopolies, prices can be raised without losing customers.
Indices by Numberof Issues
Outstanding U.S.Bond Debt ($U.S. billions)
57% of taxable municipal bonds have maturities of 10-25
16% of maturities exceed 25 years.
Municipal bonds are rarely a�ected by event risks such as leveraged buyouts.
In times of stress, municipal bond issuers have more options for covering their debt:
Why Taxable Municipal Bonds Are an Attractive Investment
Financing the
Source, number of issues: Bloomberg Barclays. Data as of March 31, 2018. Source, Outstanding US bond debt: The Securities Industry and Financial Markets Association (SIFMA), US Bond Market Issuance and Outstanding, October 4, 2018. Data as of June 30, 2018.
Source: eVestment. Past performance is no guarantee of future results, which will vary. It is not possible to invest directly in an index.
![Page 12: The Muni · 2019-12-10 · Water Conservation Wind Farms Public Education Nonpro˜t Hospitals Public Transport A˚ordable Housing Yield measures the income that bonds pay on a monthly](https://reader036.vdocument.in/reader036/viewer/2022081406/5f1335982990b34fdf0939ba/html5/thumbnails/12.jpg)
U.S. infrastructure is in a state of disrepair.
After decades of neglect, theU.S. only scored a D+ in 2017.
Presente d by
More than investing.Invested.
nylinvestments.com
1956
1%
2%
3%
4%
5%Yield to Worst
Sep.2013
Muni HY
Taxable Muni
U.S. Corp HY
Emerging Mkts Sovereign
Emerging Mkts Corp
Leveraged Loan
U.S. Corp IG
Muni IG
U.S. Agg
U.S. Securitized
U.S. Treasury
Agg ex U.S.
Municipal
2% 4% 6% 8%
Mar.2014
Sep.2014
Mar.2015
Sep.2015
Mar.2016
Sep.2016
Mar.2017
Sep.2017
Mar.2018
Sep.2018
Nov.2018
Taxable MuniUS Corp AA
US TreasuryTax-ExemptMuni AA
1961 1966 1971 1976 1981 1986 1991 1996 2001 2006 2011 2016
$342billion
$98billion
$100b
$200b
$300b
$400b
Public Spending on Transportation and Water Infrastructure (2017 dollars)
The Yield Pick Up Is Compelling2
U.S. Corporate High Yield 0.10
0.22
0.43
0.56
0.62
0.71
Pan-European Aggregate
JPM GBI (World) USD
U.S. Corporate Investment Grade
U.S. Treasury
U.S. Aggregate
0.00 0.20 0.40 0.60 0.80 1.00
No correlation Perfect positivecorrelation
Correlation of Taxable Munis to Other Bond Sectors6
Taxable municipal investment-grade index
Maturity Distribution of Outstanding Bonds (in years)
US Treasury+ Investment Grade Credit+ High Yield Corp+ Taxable Munis
US Treasury+ Investment Grade Credit+ High Yield Corp
US Treasury+ Investment Grade Credit
Risk
Return13%
10%
7%
4%
1%
2% 4% 6% 8%
Portfolio Return on Risk (Gross of Fees)7
with Hypothetical Addition of Taxable Munis (Jan. 2009 - Sep. 2018)
1-3 years
3-5 years
5-7 years
7-10 years
10-25 years
25+ years
Taxable MunicipalsCorporates
Annualized Total Return Post-Financial Crisis (Dec. 31, 2009 - Dec. 20, 2018)3
Distribution of Credit Ratings
Moody’s Rating Drift 1984 - 20165
US $40.8 Trillion Market
U.S. Municipals Global Corporates
U.S. Foreign & Emerging Markets High Yield/Securitized
% Outstanding
Moody’s Average Rating
Rati
ngs
Vari
ance
25%
20%
15%
10%
5%
Aaa
-0.60
ABS Index 369
Municipal $3,853Treasury $14,972
Asset-Backed $1,507Money Markets $1,052Federal Agency Securities $1,900
Corporate Debt $9,074
Mortgage Related $9,482
MBS Index 320
Credit Index 6,374
Agency Index 491Treasury Index 258
Municipal Index 52,838
-0.40
-0.20
0.00
0.20
1984 1990 1996 2002 2008 2014 2016
Aa1 Aa2 Aa3 A1 A2 A3 Baa1 Baa2 Baa3 Ba1 Ba2 Ba3 B1 B2 B3 Caa1 Caa2 Caa3 Ca C
The MuniOpportunity
The American Society of Civil Engineers (ASCE) regularly assesses the nation’s infrastructure - things like bridges,
airports, and drinking water - and scores it in a ‘report card’.
Municipal bonds are also quite popular with individual U.S. investors, as the interest income from most munici-pal bonds is not subject to federal income tax.
As a result, many local and state governments have been turning to taxable municipal bonds to �nance their infrastructure projects.
In the last decade, a lagging global economy led to historically low interest rates - many sovereign (national) bonds fell into negative territory. Consequent-ly, many investors sought enhanced yields by increasing corporate or emerg-ing-market credit risk.
Taxable municipal bonds provided an alternative sourceof yield potential:
Yields on AA taxable municipal bonds of 8 years or longer were 114 basis points higher than comparable Treasury yields.
This allocation is nothing new. State and local governments have traditionally shouldered the burden of U.S. infrastructure costs.
In order to fund such spending, state and local governments primarily rely on U.S. municipal bonds.
Taxable municipal bonds are an attractive investment for many reasons.
In addition to higher historical yields, the total returns of taxable U.S. municipal bonds
surpassed all but one major bond sector in the last decade.
Historically, municipal bond ratingshave also been far more stable
than those of global corporates.
This means they help provide portfolio diversification and help manage volatility.
There are a few reasons for this stability:
The ASCE estimates that $4 trillion isneeded to bring infrastructure up to a B grade.
Mostly below standard
Signi�cant deterioration
Strong risk of failure
To help meet this shortfall, the Trump administration has proposed a
$1.5 trillion planover 10 years.
$200 billionprovided by federal government
$1.3 trillionprovided by state and local governments, public-private partnerships (P3s)1
Source: Business Insider, February 12, 2018
Source: ASCE, 2017
Source: Congressional Budget Office, 2017
D+
State and Local Governments
Federal Government
Interestingly, these debt instruments are often aligned with sustainable development
WaterConservation
WindFarms
PublicEducation
Nonpro�tHospitals
PublicTransport
A�ordableHousing
Yieldmeasures the income that bonds pay on a monthly or quarterly basis.
Total returnis the combination of yield and the bond’s principal value �uctuation.
However, the U.S. tax codelimits the volume of non-taxable bonds issued and the purposes for issuing them.
Competitive Historical Yield and Strong Returns1
Most municipal bonds are high quality with low default rates, making them attractive to risk-conscious investors.
High Quality, Stable Credit Ratings2
The municipal bond market is highly fragmented, and most issues are too small to be included in a market index.
Still, the municipal bond index includes a whopping 53,000 issuers - almost 87% of all issuers in the U.S. bond index - though municipal bonds comprise less than 9% of the total U.S. bond debt by value.
Active investors have the potential to generate higher returns by applying their credit research and trading skills.
This market fragmentation, combined with limited sell-side research and many buy-and-hold investors, often leads to ine�cient pricing.
Institutional investors welcome this source of long-duration assets,as they can match them up with their long-dated obligations.
For example, a pension fund may invest in 30-year taxable municipals to help ensure it can pay guaranteed funds to its bene�ciaries over the same time frame.
As the U.S. begins to revitalize its infrastructure, taxable municipal bonds present a strong - and often overlooked - opportunity for investors.
Inef�cient Pricing3
Correlation measures the degree to which two securities move in relation to each other. In general, taxable municipal bonds have a low correlation to other �xed-income sectors.
Low Correlations4
Since taxable municipal bonds fund long-term capital projects, they are usually �nanced with longer maturing bonds.
Longer Durations
Taxable municipal bonds have many positive qualities that make them a strong contender for investment.
When added to a diversi�ed �xed-income portfolio, they have the potential to help improve the risk/return pro�le.
A CompellingPortfolio Addition
5
All data is from New York Life Investments unless otherwise stated. Footnotes:
1. Public-private partnership, or P3, is a contract between a governmental body and a private entity, with the goal of providing some public benefit, either an asset or a service.
2. Taxable Muni: ICE BofAML Broad US Taxable Municipal Securities Index; US Corp AA: ICE BofAML AA US Corporate Index; US Treasury: ICE BofAML US Treasury Index; Tax-Exempt Muni AA: ICE BofAML AA US Municipal Securities Index. Credit Ratings: S&P rates borrowers on a scale from AAA to D. AAA through BBB represent investment grade, while BB through D represent non-investment grade. Moody’s rates borrowers on a scale from Aaa through C. Aaa through Baa3 represent investment grade, while Ba1 through C represent non-investment grade. Past performance is no guarantee of future results.
3. US Corp HY: ICE BofAML US High Yield Index; Taxable Muni: ICE BofAML Taxable Municipal Index; Muni HY: Bloomberg Barclays Municipal High Yield Index; Emerging Mkts Sovereign: ICE BofAML Emerging Markets BBB & Lower Sovereign; Emerging Mkts Corp: ICE BofAML Emerging Markets Corporate Plus Index; US Corp IG: Bloomberg Barclays US Corp. Investment Grade; Leveraged Loan: S&P/LSTA Leveraged Loan Index; Muni IG: Bloomberg Barclays Municipal Investment Grade Index; US Agg: Bloomberg Barclays US Aggregate Index; US Securitized: Bloomberg Barclays US Securitized: MBS/ABS/CMBS; US Treasury: Bloomberg Barclays US Treasury Index; Agg ex US: Bloomberg Barclays Aggregate Ex-US Index.
4. Moody’s rates borrowers on a scale from Aaa through C. Aaa through Baa3 represent investment grade, while Ba1 through C represent non-investment grade. Credit Ratings: S&P rates borrowers on a scale from AAA to D. AAA through BBB represent investment grade, while BB through D represent non-investment grade. Past performance is no guarantee of future results.
5. Rating drift measures the net average number of notches a credit changes over the study period. It is defined as the average upgraded notches per issuer minus the average downgradednotches per issuer.
6. US Corp HY: ICE BofAML US High Yield Index; Pan-European Aggregate: Bloomberg Barclays Pan-European Aggregate Index; JPM GBI (World) USD: J.P. Morgan Global Bond Index (GBI Global Unhedged USD); U.S. Corp IG: Bloomberg Barclays US Corp. Investment Grade; U.S. Treasury: Bloomberg Barclays US Treasury Index; U.S. Agg: Bloomberg Barclays US Aggregate Index
7. Risk is measured by standard deviation. No representation is made as to the accuracy and completeness of information contained in this presentation that has been obtained from third parties. US Treasury: Bloomberg Barclays U.S. Intermediate Treasury Index; Investment Grade Credit: Bloomberg Barclays U.S. Credit Index; HY Corp: Bloomberg Barclays US Corporate High Yield Index; Taxable Munis: Bloomberg Barclays Municipal Index - Taxable Bonds.
“New York Life Investments” is both a service mark, and the common trade name, of the investment advisors affiliated with New York Life Insurance Company. The MainStay Funds® are managed by New York Life Investment Management LLC and distributed by NYLIFE Distributors LLC, 30 Hudson Street, Jersey City, NJ 07302, a wholly owned subsidiary of New York Life Insurance Company. NYLIFE Distributors LLC is a Member FINRA/SIPC.
New York Life, MainStay Investments, and their affiliates do not provide legal, accounting, or tax advice. You should obtain advice specific to your circumstances from your own legal, accounting, and tax advisors.
This material represents an assessment of the market environment as at a specific date; is subject to change; and is not intended to be a forecast of future events or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice regarding the funds or any issuer or security in particular.
This material contains general information only and does not take into account an individual's financial circumstances. This information should not be relied upon as a primary basis for an investment decision. Rather, an assessment should be made as to whether the information is appropriate in individual circumstances and consideration should be given to talking to a financial advisor before making an investment decision.
1823064 MS129-19 MS37mm-08/19
The sector’s 6.9% return beat the 4.6% return on U.S. corporate investment-grade bonds, a staple in most institutional portfolios.
6.9%
4.6%
Did You Know?
U.S. Municipals Global Corporates U.S. Recessions
Investment grade Non-investment grade
Over 76% rated A1 or better; tiny portion below investment grade
U.S. Municipals4
Only ~10% are AA rated;nearly half are below investment grade
0.81% for those rated BAA by S&P 0.84% for those rated AAA by S&P
Global Corporates
Rating Spread
Default Rate
Moody’s US Municipal Bond Defaults & Recoveries, 1970 – 2017. Source: Moody’s Investors Service.
Source: Moody’s US Municipal Bond Defaults and Recoveries 1970 – 2017;Moody’s Trends in Global Corporates Rating Transitions 1983 – 2017.
Yield-to-worst is the lowest potential yield that can be received without the issuer defaulting. Past performance is no guaranteeof future results, which will vary. It is not possible to invest directly in an index. Source: ICE BofAML, November 30, 2018
Past performance is no guarantee of future results, which will vary. It is not possible to invest directly in an index.
Source: municipals - S&P USPF Cumulative Average Default Rates 1986-2017; corporates - S&P US Corporate Average Cumulative Default Rates 1981-2017
June 30, 2008 – June 30, 2018. It is not possible to invest direct into an index. Source: Bloomberg Barclays Indices.
General obligation bondsare backed by the issuer’s full faith and credit. State and local governments can raise taxes as required.
Revenue bondsare backed by speci�c cash �ow streams including tolls and fees for essential services. Since many of these are virtual monopolies, prices can be raised without losing customers.
Indices by Numberof Issues
Outstanding U.S.Bond Debt ($U.S. billions)
57% of taxable municipal bonds have maturities of 10-25
16% of maturities exceed 25 years.
Municipal bonds are rarelya�ected by event risks such as leveraged buyouts.
In times of stress, municipal bond issuers have moreoptions for covering their debt:
Why Taxable Municipal Bonds Are an Attractive Investment
Financing the
Source, number of issues: Bloomberg Barclays. Data as of March 31, 2018. Source, Outstanding US bond debt: The Securities Industry and Financial Markets Association (SIFMA), US Bond Market Issuance and Outstanding, October 4, 2018. Data as of June 30, 2018.
Source: eVestment. Past performance is no guarantee of future results, which will vary. It is not possible to invest directly in an index.