00:00So we've seen a surge of issuance this year too. So this is almost the third year. We're on pace
00:05to
00:07actually break last year's record. So we almost are looking at about $300 billion
00:12in the first half. If you analyze that, you know, kind of street estimates are close to $600 billion.
00:17So that has been a major headwind. But I think the difference this year, now keep in mind,
00:24we just gave back a good amount of performance in July, right? So kind of the broad muni index was
00:30down, you know, about 1.8%. We're slightly positive now for the year. So we gave a lot of it
00:36back.
00:37A lot of that had to do, though, with the treasury rate volatility right in the movement there. So
00:41this was not a credit issue. And then again, treasury rate volatility, coupled with supply,
00:46that's what's really kind of created this negative overlay for munis. But again, I think when you
00:54look at the technicals, it's about supply, but it's about how can that be absorbed? So then it's
01:00also demand. So demand has actually been fairly robust this year. So if we see that trend continue,
01:07that can help absorb some of the supply, which is very different than what we saw last year,
01:12where demand wasn't keeping up with the amount of supply the market saw. But all that being said,
01:16though, absolute yields are on a tax adjusted basis are really attractive for a lot of people,
01:23right? Like people in high tax jurisdictions like New Jersey. Yes, that's exactly right. So
01:30we were seeing that already before this recent repricing. Now, where we see, you know, I would say
01:37the curve remains very steep, right, especially relative to the treasury market. So you're getting
01:42paid to take on duration. The belly of the curve, though, particularly has sold off the most so
01:47far this year. So think about that as a 10 year part of the curve. A lot of the issuance
01:52has been
01:52in that part of the curve. So that part of the curve has sold off even more than the long
01:57end.
01:58So now, before you had to maybe go out 1520 years to get, you know, I think getting I don't
02:04want to say get paid for a duration, but to really find that relative value, you don't have to go
02:08out
02:08that far. So your 10 year bond, New Jersey, let's say roughly three and a half percent yield
02:13high tax state, you're looking at, you know, kind of six and a half, seven percent all in,
02:18which is extremely attractive. So as we talk about this equity melt up, Tom, seven percent locked in
02:25high quality bonds. That that looks very attractive on a risk reward basis, in my view.
02:30How is parametric different from the big houses in mini bonds? What are you people doing exactly?
02:36So two things. We manage separately managed, separately managed accounts. So what that means
02:42is each of our accounts are customized. We manage roughly 90,000 different accounts. So Tom, you give
02:48us an account. Paul, you give us an account. You give us a parameter around what you want us to
02:52invest
02:52in. So be New Jersey for you. And you go out and find bonds. Correct. Now we do ladders. You
02:57talked
02:57about laddering. It's a great way to take beta exposure, but we also do. Wait, wait, they were a great
03:02band. Beta exposure, they play Devo like nobody. What in God's name is beta exposure?
03:08Well, that means, look, you can't match the index perfectly in munis, right? It is very tough to
03:14recreate a muni index. But by saying, hey, I would like a, let's say, one to 10 year ladder,
03:19New Jersey specific, we can create that market exposure to munis. Now we can also manage to toll
03:25return component. But bottom line, Tom, the number one thing that we are doing is customizing these
03:31accounts for our clients. Number two, munis are already inherently tax efficient. We are overlaying
03:37this with a component of tax loss harvesting. So Parametric manages over 750 billion across equities
03:44and fixed income. Tax loss harvesting is another element of tax efficiency that we can create for
03:49our clients at Parametric. How's credit quality out there in the municipal bond world? I don't hear any
03:54stories like a, I don't know, Chicago or Puerto Rico blowing up and causing all kinds of problems.
04:00How's credit quality out there? Credit quality is fairly stable. And look, I would say boring is
04:05okay, right? So, but, but I think you have pockets in certain areas in certain sectors that you do see
04:11a little bit more credit bifurcation. So private education, I would say healthcare in the lower quality
04:18space, obviously you want that credit oversight, right? Making sure you're getting paid for that,
04:22for that additional yields. But think about the economy, right? I mean, the economy has been
04:26fairly strong. Tax collections are strong. So you're looking at a fairly robust profile generally
04:32across the board in the investment grade space. Now you may start to see headline risk. Now I would
04:39say you're seeing that with some states, with some cities, dare I say New York City, given the budget
04:46gaps, right, that are projected, some of the one-time measures they're considering. But we remind our
04:50clients that fund.
Comments