Global financial markets were turbulent during the first day of trading following the United Kingdom vote to leave the European Union.
Amid the market uncertainty, investors moved assets to the safety of U.S. government bonds, pushing prices higher and yields lower. Yield on the 10-year Treasury note dropped to an intra-day low of 1.419% (near its record low yield of 1.404%), but by the end of the day, the yield on the 10-year Treasury was 1.575%; down from 1.745% on the previous day.
Thomson Reuters Municipal Market Data reported that municipal bond yields reached all-time lows, with the benchmark 30-year AAA dropping to 2.08%. Total return on the Barclays 10-Year Municipal Index was 0.82% for June 24th with a yield to worst of 1.57% versus 1.70% on June 23rd.
During periods of market turbulence, a ‘flight to quality’ on the part of investors has resulted in buying US Treasuries and, to a lesser degree, municipal bonds. That demand typically drives prices higher and yields lower. Although the Federal Reserve had previously indicated that another rate increase was possible in 2016, it now appears that any increase could be postponed until late 2016 or sometime in 2017. Read more “Brexit – Day One”
Each of the municipal bond funds offered in the Aquila Group of Funds adheres to an investment strategy focused on investment grade bonds as a means of managing credit risk, and an intermediate average portfolio maturity as a means of managing interest rate risk. In keeping with our emphasis on high-quality holdings, the seven state-specific municipal bond funds offered by Aquila have no Puerto Rico holdings, whereas Morningstar has reported that over 20% of US Bond Funds had roughly an $11.3 billion total exposure to Puerto Rico debt as of 3/31/15; down from two-thirds of funds having exposure a year ago.
On Monday June 29th, Puerto Rico’s Governor Alejandro Garcia Padilla announced that the territory’s approximately $73 billion in municipal debt is unpayable and called for concessions from creditors. Moody’s downgraded Puerto Rico’s general obligation debt into junk territory with a negative outlook on July 1, 2015, which was the seventh downgrade in five years.
On the Aquila Group of Funds website, you will find information regarding the investment strategies and full portfolio holdings of each state-specific municipal bond fund. The investment objectives, risks, charges, expenses, and other information will be found in the Fund prospectus. Information on the Fund holdings will be found in the Fact Sheet, Annual and Semi-Annual reports, and the Portfolio Holdings report. We encourage you to review this information, and to visit the web site frequently for updates on each fund, and our perspectives on the markets.
The July 11, 2015 issue of Barron’s features a cover story on investing in bonds which includes a favorable perspective on municipal bonds, amid general concerns regarding rising rates. While the timing and magnitude of a future Fed Funds rate increase is still uncertain, expectations cluster around a 0.25% increase in September, 2015. If we do see a rate increase in September, it won’t be the first time that rates have gone up. Over the past 30 years, interest rates have been declining, but that general trend is marked by periods in which the Fed Funds rate rose by as much as 4%.
The head of a fixed-income asset management company is quoted in the Barron’s article, saying “the rich are getting richer, and they’re getting older”. The point relates to demand for municipal bonds in that there is a growing population of aging investors attracted to the tax-exempt income offered by municipal bonds. Recently, the supply of municipal bonds has declined as municipal issuers have worked to manage their budgets. Supply is likely to decline further in an environment of higher rates which increase the cost of borrowing for these issuers. Limited supply and heightened demand can provide support for prices. Read more “A New Approach to Bonds”
During the Aquila Narragansett Tax-Free Income Fund Annual Shareholder meeting on April 2, 2015, Rhode Island State Treasurer, Seth Magaziner spoke to attendees, sharing his observations on the economy in Rhode Island. He pointed out that the financial position of the state is steadily improving, having reached a turning point with a new sense of optimism in the air. Read more “Rhode Island State Treasurer, Seth Magaziner, speaks to Fund shareholders”
On January 20, 2015, Asset TV produced a Municipal Bond Masterclass in which a panel of municipal bond fund portfolio managers was asked to discuss their expectations of the municipal bond market in 2015 and their investment strategies.
Todd Curtis, Senior Vice President and Portfolio Manager or Co-Portfolio Manager of Aquila Tax-Free Trust of Arizona, Aquila Churchill Tax-Free Fund of Kentucky and Aquila Tax-Free Fund For Utah participated as a panelist. The following video includes highlights from his comments.
Shares of the Funds may only be sold by offering the Funds’ Prospectus. Before investing in a Fund, carefully read about and consider the investment objectives, risks, charges, expenses, and other information found in the Fund prospectus. The prospectus is available on this site, from your financial adviser, and when you call 800-437-1020.
We believe that one of the benefits of having a portfolio manager and analyst located in the market in which Aquila Tax-Free Trust of Oregon invests, is the opportunity this provides to closely follow public policy developments and legislation, in addition to the financial condition of municipal bond issuers.
Developments related to the Public Employee Retirement System (PERS) provide an example. In 2013, the Oregon Legislature enacted PERS reforms that reduced the cost-of-living adjustment for all retirees, and eliminated tax remedy payments for beneficiaries who do not live in Oregon and are therefore not subject to Oregon state income tax. These provisions will be considered by the Oregon Supreme Court early in 2015. While it is possible that the Court could reverse the PERS reforms, we currently view that as the less likely outcome. Read more “PERS Reforms to be Considered by the Oregon Supreme Court”