The Treasury bond market may be dominating the headlines, as investors fuss and fret over the timing of an end to the Federal Reserve’s ultra-accommodative monetary policy. But the folks at S&P Dow Jones Indices reminded us today that the real pain is being felt by those who own municipal bonds. With just a few days left in June, munis are in the midst of the worst month they have witnessed since September 2008, the height of the financial crisis. That month, the S&P National AMT-Free Muni Bond Index dropped 5.13 percent, and so far this month it’s 4.97 percent in the red.
The higher the yield, the greater the degree of pain: The S&P Municipal Bond High Yield Index is down 7.08 percent, its worst month since December of 2008, although yields among these securities (which move in the opposite direction to the prices of the bonds) haven’t risen as much as have those for investment-grade bonds.
It’s hard to imagine how the ability to shelter income from these bonds from taxes makes up for this kind of loss, the magnitude of which makes the performance of corporate bonds and even junk bonds look almost benign by comparison; declines in these indices are 3.16 percent and 3.46 percent, respectively. Of course, all of those losses have been concentrated in a single month. So, if your closest friend has remained a devout bond bull for all these years, this might be the time to offer him an extra gin and tonic and let him win the next time you face off on the tennis court or the golf course. He’ll need something to feel good about.