Fixed Income Market Commentary

Last Updated: 1/18/2022

Q4 2022

2022 was one of the most difficult years for investors since the Great Recession over a decade ago.  Throughout the capital markets, damage was widespread.  The table below shows the total returns for some of the largest indices:

As 6-7% inflation eroded purchasing power, investors were left to ponder their next move.  But this painful market selloff has created fixed-income opportunities that we haven’t seen in many years.  18 months ago, you would have had a difficult time finding investment grade municipal bonds paying yields above 2.00%.  Today, high quality tax-free munis are yielding at or above 4.00%.  For investors with shorter time horizons and/or more conservative risk tolerances, you can buy 1-month to 2-year Treasuries in the 4.00-4.50% range.  Many analysts and advisors who have shunned bonds for over a decade are beginning to notice the asset class again.

If we consider the performance of municipal bonds in the 4th quarter, you’ll see that investors have taken advantage of this higher yield environment.  Over the past few months, munis have outpaced gains in the US Treasury market by a decent amount.  Let’s take a look at Q4 numbers:

One data point that we track closely to determine municipal bond demand, is the Muni to Treasury (UST) ratio.  This is simply the muni yield for a given maturity, divided by the Treasury yield for the same maturity.  The ratio can be used along the entire maturity spectrum.  The change in the ratio over time is a great way to evaluate muni performance versus Treasury performance along the curve – but the 10-year ratio is typically given the most weight.

At the beginning of Q4, the 10-year muni to UST was 88%, and by the end of the quarter, it dropped to 70%.  At the time of this writing, we are now down in the 60’s.  From a historical perspective, this ratio is very low and is a great indication of the demand for munis.  Investors are taking quick action to lock in higher tax-free yields.

If the last 3 years have shown us anything, it’s that we can’t predict what will happen next in the market.  With that being said, we are confident that the fixed-income markets will continue to provide some great investment opportunities in 2023. 

Should you have any questions about the markets, specific opportunities, or your portfolio, we highly encourage you to schedule a meeting with your financial advisor today. 


VP of Special Projects & Advisor

Vice President & Advisor

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