Municipal Bond Investor Weekly September 20, 2021 Noreen Mcclure –Director, High Net Worth Drew O’Neil - VP, Fixed Income Strategist

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Municipal Bond Investor Weekly September 20, 2021 Noreen McClure –Director, High Net Worth Drew O’Neil - VP, Fixed Income Strategist

What To Do With MY Cash!

Many investors are sitting on cash… a tremendous amount of cash. I recently read an article written by Ben Carlson, from his blog “A wealth of common sense” titled, “Why is There Nearly $10 Trillion Earning Nothing in Saving Accounts”? He mentioned that according to Bankrate the average interest rate for a savings account rate now is .06% or lower. So how much cash is sitting on the sidelines in your account? Don’t be paralyzed at these low rates, be proactive within the municipal market!

Are you waiting for rates to rise? For over a decade we’ve talking about rising rates… but it hasn’t happened yet. In fact, the Fed has said they will not raise rates in the foreseeable future. Yet, many investors follow media pundits’ expectations, instead of doing what is right for their individual financial needs. Let’s review the fundamental principles of why we include individual municipal fixed income into our investment portfolios: wealth preservation, reliable tax efficient income, and a defined maturity date. These three attributes of an individual municipal bond are what highlights the overall attractiveness of the investment. I can understand your concerns about the future expectations of a rise in rates, however there are multiple strategies we can visit that could enhance your investment opportunities. I must note that none of these strategies provide guaranteed principal protected liquidity if an investor needs to liquidate prior to maturity; like a savings account would.

Three strategies that we are currently deploying (but not limited to) are 1) purchasing kicker (cushion) bonds 2) buying short term maturities at rates above bank deposit rates and 3) buying the steepest part of the municipal curve. I will review each strategy briefly in this commentary.

1) Kicker bonds. This is a bond structure that may appear complex to some investors because the bond trades at a premium to par, however, there is an innate opportunity investing in kickers that many do not fully understand. A kicker bond is a security that pays an above market coupon and is callable in the near future. The bond is priced with the assumption the bond will be called on its call date. If the bond is not called, the investor is further rewarded with higher returns each year the bond remains outstanding, hence the term kicker! Each year the bond remains outstanding past the first call date-- the investor receives a kick-up in return and the yield will increase incrementally until it is called or reaches the maturity date. In summary, if an investor purchases a 5% coupon bond with a long maturity with a 3 year call (YTC 0.31%) the investor could possibly pick up an additional 116 bp of yield if the bond was called in the 4th year (YTC 1.46%) instead of year 3. That is a 79% pick up in yield while maintaining a low duration security.

2) Short term municipals. Depending on your federal marginal tax bracket and your state of residence, short term maturities may present an opportunity over bank deposit rates. For example, there was a Clay County Minnesota deal priced last week where an investor could have purchased a 2022 maturity with a yield at a 0.13%, or a 2023 maturity yielding 0.16%. If the investor was a Minnesota resident, their taxable equivalent yield (TEY) would have been much higher.

Clay CO MN GO AAA MN Credit Program AA underlying rating

State of Residence Maturity Coupon Yield TEY @ 37% MN Resident 8-1-2022 4.00% .13% .24% 8-1-2023 4.00% .16% .30% Texas Resident 8-1-2022 4.00% .13% .20% 8-1-2023 4.00% .16% .25% © 2021 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. © 2021 Raymond James Financial Services, Inc., member FINRA/SIPC. All rights reserved. International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida 33716 | 800-248-8863 Raymond James Fixed Income Solutions As you can see from the above chart a Minnesota resident purchasing a bond in their state can receive a taxable equivalent yield (TEY) in excess of 0.20%, and far above money market and bank deposit rates. If you are an investor that does not reside in Minnesota, perhaps in you live in a state with no income tax, such as Texas, you can receive a TEY of +0.20%. Your advisor can assist you in following the short term alternatives in the new issue market and possibly even in your state of residence to ensure double tax exemption.

% of Total 3) Identifying the steepest segment of the yield curve. Year Yield Segment Slope (bp) Yield Available Deploying bonds within those years on the curve allows you to 2022 0.07 5% capture a large percentage of attainable yield without necessarily 2023 0.11 7% assuming too much duration risk. Taking a historic look over the 2024 0.17 11% past three years, the slope of the AAA municipal yield curve at 2025 0.28 18% 147 bp is the steepest it has been since March 2021 (the flattest 2026 0.41 1 to 5 Yr 34 bp 27% curve was back in September 2019 coming in at just 72 bp). So 2027 0.54 35% what is this telling an investor? If you could pick up over 60% of 2028 0.67 44% the achievable yield of the entire curve while maintaining an average maturity of five years would you consider that? How 2029 0.78 51% about 75% of the curve with an average maturity of 10 years? The 2030 0.86 56% chart to the left illustrates the current AAA municipal yield curve 2031 0.94 5 to 10 Yr 51 bp 61% and highlights the steepness between the 5 to 15 year maturities. 2032 1.00 65%

2033 1.05 68% All of the strategies, along with many other ideas, can be attained 2034 1.09 71% by working with your Fixed Income Solutions team to assure that 2035 1.13 73% a custom portfolio compliments your current financial goals. 2036 1.16 10 - 15 yr 22 bp 75% 2037 1.19 77% The Week Ahead… Just under $10 million in new issues are 2038 1.23 80% expected this week according to The Bond Buyer. Some of the 2039 1.27 82% larger deal expected to come to market include: the Triborough 2040 1.31 85% Bridge and Tunnel Authority (-/AA+/AA+) is selling $880 million of 2041 1.34 15 - 20 yr 18 bp 87% payroll mobility tax senior lien bonds; the Department of Airports 2042 1.37 89% of Los Angeles, CA (Aa3/A+/AA-) is issuing $750 million of 2043 1.40 91% subordinate revenue bonds; the New Jersey Health Care Facilities Financing Authority (Aa3/AA-) is selling $746 million of revenue 2044 1.43 93% bonds for RWL Barnabas Health Obligated Group; Ohio State 2045 1.46 95% University (Aa1/AA/AA) is bringing a $600 million deal of general 2046 1.49 20 - 25 yr 15 bp 97% receipts bonds to market; and the Turnpike Authority of Kentucky 2047 1.50 97% (Aa3/-) is selling $157 million of economic development road 2048 1.51 98% revenue refunding bonds. See table below for additional new 2049 1.52 99% issuance. 2050 1.53 99% 2051 1.54 25 - 30 yr 5 bp 100% For the Numbers… The muni market saw little change over the Sources: MMD, Raymond James past week. Yields declined by 1 bp at 1 year with demand pressure for short term supply. Yields also declined 3 bp in 15 years and were unchanged at 30 years. The muni/Treasury ratio declined slightly with the 10 year at a 68% and the 30 year at 80%. Although the market continued its 28 consecutive weeks of positive muni flows into mutual funds, the size of the inflows has been decreasing.

This Week Last Week Change 10 Y 30 Y 10 Y 30 Y 10 Y 30 Y Municipal (AAA) 0.94% 1.53% 0.93% 1.53% 0.00% 0.00% Treasury 1.37% 1.91% 1.35% 1.94% 0.02% -0.03% Ratio 68.3 80.2 69.1 78.8 -0.7 1.4 Tax Equivalent Ratio (Fed 37%) 108.5 127.3 109.7 125.1 -1.2 2.2

Bond Yields (%) as of 09/17/21 1 2 3 4 5 7 10 15 20 25 30 Muni AAA¹ 0.07 0.07 0.14 0.26 0.39 0.64 0.94 1.17 1.32 1.47 1.53 Weekly Change * 0 0 0 0 0 1 0 0 0 0 0 Tax Equiv Munis² 0.11 0.11 0.22 0.42 0.63 1.01 1.49 1.85 2.10 2.34 2.43 Taxable A Muni³ 0.33 0.51 0.79 1.07 1.27 1.60 1.78 1.97 2.39 2.43 2.43 Weekly Change * 0 0 1 4 5 6 4 2 1 0 -1 Treasuries³ 0.07 0.23 0.47 0.68 0.88 1.17 1.37 1.61 1.85 n/a 1.91 Weekly Change * -1 0 2 4 6 5 2 1 -1 n/a -3 Corporates A³ 0.24 0.40 0.69 0.98 1.23 1.65 2.09 2.60 2.76 2.83 2.80 Weekly Change * 1 2 3 4 4 3 2 1 -1 -3 -3 This 1-Week 1-Year This Last Last Week Change Change Week Week Year Dow Jones Industrial 34,585 -0.1% 25.0% Prime Rate 3.250 3.250 3.250 NASDAQ Composite 15,044 -0.5% 39.4% 3-Month LIBOR 0.124 0.116 0.227 Crude Oil 71.97 3.2% 64.3% Fed Funds 0.250 0.250 0.250 U.S. Dollar/Euro 1.173 -0.8% -0.4% 1-Month T-Bill 0.060 0.060 0.090 Gold 1,751 -2.3% -11.9%

Historical Perspective on the Municipal Market 4.00 AAA Yields (%)

3.50 30-YR 10-YR 3.00 5-YR

2.50

2.00

1.50

1.00

0.50

0.00 Sep-16 Jan-17 May-17 Sep-17 Jan-18 May-18 Sep-18 Jan-19 May-19 Sep-19 Jan-20 May-20 Sep-20 Jan-21 May-21

Comparative Yield Curves

3.0% Tax Equiv Munis AAA Muni/Treasury Ratio (30-Year Maturity) 140% Treasuries 130% Corporates (A) 120% 2.0% 110% 100% 90% 80% 1.0% 70% 60% 50% 0.0% 40% 1 2 3 4 5 7 10 15 20 25 30 Years To Maturity

© 2021 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. © 2021 Raymond James Financial Services, Inc., member FINRA/SIPC. All rights reserved. International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St. Petersburg, Florida 33716 | 800-248-8863 Raymond James Fixed Income Solutions New Issue Calendar Date Amount Issuer ST Description Moody's/S&P/Fitch Maturity 9/20 $181MM Triborough Bridge & Tunnel NY (MTA Bridges & Tunnels) Payroll Mobility NR /AA+ /AA+ 5/15/22-28;31-36 9/20 $297MM Triborough Bridge & Tunnel NY (MTA Bridges & Tunnels) Payroll Mobility NR /AA+ /AA+ 5/15/1951 9/20 $388MM Triborough Bridge & Tunnel NY (MTA Bridges & Tunnels) Payroll Mobility NR /AA+ /AA+ 5/15/23-25,37-51 9/20 $86MM The Turnpike Authority of Kentucky KY Economic Development Road Revenue Aa3 / / 7/1/22-33 9/20 $14MM Douglasville Convention and Conf GA Revenue Bonds (Amphitheater Project), /AA / 2/01/23 - 47 9/21 $14MM The Turnpike Authority of Kentucky KY Economic Development Road Revenue Aa3 /NR /NR 7/1/29-31 9/21 $57MM The Turnpike Authority of Kentucky KY Economic Development Road Revenue Aa3 /NR /NR 7/1/29-32 9/21 $55MM New York State Housing Finance NY Affordable Housing Revenue Bonds 2021 Aa2 / / 05/01/2022-47 9/21 $110MM New York State Housing Finance NY Affordable Housing Revenue Bonds 2021 Aa2 / / 05/01/2022-56 9/21 $16MM Lake Worth Independent School TX Taxable Unlimited Tax Refunding Bonds Aaa / / (A1 / / ) PSF 2/15/2022, 25-32 9/21 $78MM Illinois Housing Development IL Multi-Family Revenue Bonds, 2021 Series C Aaa / / 07/01/2025-65 9/21 $5MM Greenville County, SC SC Hospitality Tax Revenue Bonds Series A1 /A+ /AA+ 4/1/22 - 35, 37,39,4 9/21 $25MM Greenville County, SC SC Taxable Hospitality Tax Revenue A1 /A+ /AA+ 4/1/22 - 30 9/22 $1MM Terra Bella Union Elementary SD CA 2021 General Obligation Refunding Bonds, /AA / ( /A+ / ) AGM 08/01/2022-25 9/22 $3MM Terra Bella Union Elementary SD CA 2021 General Obligation Refunding Bonds , /AA / ( /A+ / ) AGM 08/01/2031-43 9/22 $70MM Southwest Independent School TX Unlimited Tax Refunding Bonds /AAA / ( /AA- / ) PSF 2/1/2022, 26-43 9/22 $6MM PBA of the City of Jacksonville AL Lease Revenue Bonds /A+ / 9/1/22 - 51 9/23 $5MM City of Linden, County of Union, NJ General Obligation Refunding Bonds, NR /AA- /NR 5/1/22-26 BQ: Bank Qualified, SG: Selling Group, PSF: Permanent School Fund, GO: General Obligation, UT: Unlimited Tax, LT: Limited Tax. New issues are offered by Official Statement only. Free copies on request. For full calendar of New Issues visit www.raymondjames.com/fixed_income_municipal_bonds_calendar.htm.

There is no assurance any of the trends mentioned will continue or forecasts will occur. Investing involves risk and investors may incur a profit or a loss. Past performance may not be indicative of future results. Prior to transacting in any security, please discuss the suitability, potential returns, and associated risks of the transaction(s) with your Raymond James Financial Advisor.

This communication is not an offer to sell or a solicitation to buy any securities mentioned herein. High grade and High yield securities mentioned herein may not be suitable for all investors. A credit rating of a security is not a recommendation to buy, sell or hold securities and may be subject to review, revisions, suspension, reduction or withdrawal at any time by the assigning rating agency. Raymond James & Associates, Inc. (RJA) or its affiliates may perform investment banking or other services for, or solicit investment banking business from, any company or issuer mentioned in this report. RJA or its officers, employees, or affiliates may own shares, options, rights or warrants and/or execute transactions in the securities mentioned in this report which may not be consistent with the report’s conclusions. Additionally, RJA may at times elect to make markets in particular high yield securities, but there can be no guarantee that our market making activities will be uninterrupted. All expressions of opinion reflect the judgment of the Fixed Income Municipal Department of RJA at the time of publication and may be subject to change without notice. Information has been obtained from sources considered reliable, but we do not guarantee that the foregoing report is accurate or complete. Other departments of RJA or its affiliates may have information that is not available to the Fixed Income Municipal Department about companies or Issuers mentioned in this report. Further information on the securities mentioned herein is available upon request. Interest on Municipal Bonds is generally exempt from federal taxation and may also be free of state and local taxes for investors residing in the state and/or locality where the bonds were issued. However, bonds may be subject to federal alternative minimum tax (AMT), and profits and losses on tax-exempt bonds may be subject to capital gains tax treatment. Bonds are subject to risk factors including: 1) Default Risk - the risk that the issuer of the bond might default on its obligation 2) Rating Downgrade - the risk that a rating agency lowers a debt issuer's bond rating 3) Reinvestment Risk - the risk that a bond might mature when interest rates fall, forcing the investor to accept lower rates of interest (this includes the risk of early redemption when a company calls its bonds before maturity) 4) Interest Rate Risk - this is the risk that bond prices tend to fall as interest rates rise. 5) Liquidity Risk - the risk that a creditor may not be able to liquidate the bond before maturity. High-yield bonds are not suitable for all investors. The risk of default may increase due to changes in the issuer's credit quality. Price changes may occur due to changes in interest rates and the liquidity of the bond. When appropriate, these bonds should only comprise a modest portion of a portfolio.

Sources: (1) BVAL Municipal AAA Yield Curve (Callable) (2) Tax Equivalent Yield calculations on AAA-rated tax exempt yields assume a 37% tax rate (3) Treasury, Corporate, and Taxable Municipal yields from Bloomberg. Short Term Yields are from Bloomberg, Federal Reserve and Securities Industry and Financial Markets Association. * In Basis Points. BVAL Municipal AAA Yield Curve (Callable) - The curve is populated with high quality US municipal bonds with an average rating of AAA from Moody's and S&P. The yield curve is built using non-parametric fit of market data obtained from the Municipal Securities Rulemaking Board, new issues, and other proprietary contributed prices. The curve represents 5% couponing. The 3 month to 10 year points are bullet yields, and the 11 year to 30 year points are yields to worst for a 10-year call.

US Treasury securities are guaranteed by the US government and, if held to maturity, generally offer a fixed rate of return and guaranteed principal value. The Dow Jones Industrial Average (DJIA) is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange (NYSE) and the NASDAQ. The NASDAQ Composite is a stock market index of the common stocks and similar securities listed on the NASDAQ stock market. Investing in oil involves special risks, including the potential adverse effects of state and federal regulation and may not be suitable for all investors. Currencies investing are generally considered speculative because of the significant potential for investment loss. Their markets are likely to be volatile and there may be sharp price fluctuations even during periods when prices overall are rising. Gold is subject to the special risks associated with investing in precious metals, including but not limited to: price may be subject to wide fluctuation; the market is relatively limited; the sources are concentrated in countries that have the potential for instability; and the market is unregulated. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance.

Investment products are: not deposits, not FDIC/NCUA insured, not insured by any government agency, not bank guaranteed, subject to risk and may lose value.

Ref: M20-3057961 until 4/24/2022