July 21, 2020 – An analysis by Bank of America indicated European and many Asian investors can achieve significant incremental yield over their domestric government bonds by purchasing AAA-rate U.S. taxable municipal bonds, and entering into a cross-currency swap for coupon and principal payments.<\/p>\n\n\n\n
As of July 16 rates, Australian and Canadian investors can lock in over 120 basis points of incremental yield for 10 years. For the strongest European credits – Germany and the U.K – investors can still secure close to 90-100 bps over risk-free local rates.<\/p>\n\n\n\n
Among the wealthiest Asian countries, three (Japan, South Korea and Singapore) can achieve incremental yield of between 30-60 basis points. China was a notable exception. A holder of 10yr Chinese government bonds would achieve 2.946% yield vs 2.371% yield for taxable munis, adjusted for the currency hedge.<\/p>\n\n\n\n
U.S. municipal issuers and their investment bankers have a long tradition of selling bonds to foreign investors, including sovereign entities but also corporates and insurance companies looking for diversification and long-dated bonds.<\/p>\n\n\n\n
One of the key barriers to foreign participation in the U.S. municipal market have been currency exposure. BuyMuni was informed by a bulge bracket muni trader that post-Dodd Frank, banks have been less willing to provide long-dated currency swaps although will still do so for the largest European and Asian sovereign-supported institutional clients on a case-by-case basis.<\/p>\n\n\n\n Contact Jumanne Johnson at JJohnson@buymuni.com.<\/p>\n","protected":false},"excerpt":{"rendered":" July 21, 2020 – An analysis by Bank of America indicated European and many Asian investors can achieve significant incremental…<\/p>\n","protected":false},"author":4,"featured_media":887,"comment_status":"open","ping_status":"open","sticky":true,"template":"","format":"standard","meta":{"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_feature_clip_id":0,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_post_was_ever_published":false},"categories":[94,8,13,59,11],"tags":[],"class_list":["post-886","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-broker-dealer","category-investing","category-markets","category-public-debt-offering","category-sell-side-research","wpcat-94-id","wpcat-8-id","wpcat-13-id","wpcat-59-id","wpcat-11-id"],"jetpack_featured_media_url":"https:\/\/buymuni.com\/wp-content\/uploads\/2020\/07\/20200721-BM-Foreign.jpg","jetpack_sharing_enabled":true,"jetpack_likes_enabled":false,"_links":{"self":[{"href":"https:\/\/buymuni.com\/index.php?rest_route=\/wp\/v2\/posts\/886","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/buymuni.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/buymuni.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/buymuni.com\/index.php?rest_route=\/wp\/v2\/users\/4"}],"replies":[{"embeddable":true,"href":"https:\/\/buymuni.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=886"}],"version-history":[{"count":1,"href":"https:\/\/buymuni.com\/index.php?rest_route=\/wp\/v2\/posts\/886\/revisions"}],"predecessor-version":[{"id":888,"href":"https:\/\/buymuni.com\/index.php?rest_route=\/wp\/v2\/posts\/886\/revisions\/888"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/buymuni.com\/index.php?rest_route=\/wp\/v2\/media\/887"}],"wp:attachment":[{"href":"https:\/\/buymuni.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=886"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/buymuni.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=886"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/buymuni.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=886"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}Country<\/td> 10yr Local Govt Bond Yield<\/td> 10yr U.S. Muni Taxable Bond Yield<\/td> Incremental Yield<\/td><\/tr> Canada<\/td> 0.499%<\/td> 1.819%<\/td> 1.320%<\/td><\/tr> United Kingdom<\/td> 0.136%<\/td> 1.127%<\/td> 0.991%<\/td><\/tr> Germany<\/td> -0.471%<\/td> 0.444%<\/td> 0.915%<\/td><\/tr> France<\/td> -0.160%<\/td> 0.444%<\/td> 0.604%<\/td><\/tr> Japan<\/td> 0.008%<\/td> 0.331%<\/td> 0.323%<\/td><\/tr> Australia<\/td> 0.875%<\/td> 2.077%<\/td> 1.202%<\/td><\/tr> South Korea<\/td> 1.349%<\/td> 1.991%<\/td> 0.642%<\/td><\/tr> China<\/td> 2.946%<\/td> 2.371%<\/td> -0.575%<\/td><\/tr> Singapore<\/td> 0.846%<\/td> 1.543%<\/td> 0.697%<\/td><\/tr><\/tbody><\/table>
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