content-documents/house-oversight-nov/0b/HOUSE_OVERSIGHT_014602.md

---
title: "House Oversight: Estate Documents (Nov 12) (HOUSE_OVERSIGHT_014602)"
source: "House Oversight: Estate Documents (Nov 12)"
sourceUrl: "https://www.justice.gov/epstein"
date: "2026-01-01"
category: "House Oversight"
eftaNumber: "HOUSE_OVERSIGHT_014602"
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Exhibit 83: Ratio of Municipal Bond Yields to
Treasury Yields
Current municipal bond yields offer a larger valuation buffer
to absorb risks than in the past.
Ratio (%)
100 1
• Current
• Average Since 2000
•Average Since 1987
95
93
91
90
85
85
80
80
70
60 -
50
5-Year Ratio
10-Year Ratio
Data as of December 31, 2016.
Source: Investment Strategy Group, Bloomberg, Thomson MMD.
benchmark duration. Given their important
portfolio hedging characteristics, municipal bonds
should remain the bedrock of the "sleep-well"
portion of a US-based client's portfolio.
The same can be said for high yield municipal
bonds. Despite their almost 10-year duration, these
bonds currently offer attractive spreads of close to
3%, a level that has been higher only 29% of the
time since 2000. This spread provides a substantial
buffer that could partially offset higher Treasury
yields, enabling the high yield municipal market
to deliver positive returns of around 4% in our
base case. Therefore, we recommend clients stay
invested at their customized strategic weight.
US Corporate High Yield Credit
Even for the bullish among us, last year's
17% total return in corporate high yield was
surprisingly strong. Not only was it the largest gain
within US fixed income, but it also ranked among
While there is clearly no shortage of
risks, the silver lining to last year's
rout in municipal bonds is that
we begin 2017 with a much larger
valuation buffer to help absorb them.
Outlook Investment Strategy Group
Exhibit 84: Municipal Issuer Rating Changes
Stable revenue and spending discipline have led to recent
issuer rating upgrades.
Share of Rating Changes (%)
• Upgrades
• Downgrades
100
90
80
37
42
49
39
70
56
56
54
50
63
60
50
40
30
63
61
58
51
20
44
44
50
46
37
10
0
3014
4014
1015
2015
3015
4Q15
1Q16
2Q16
3Q16
Data as of 03 2016.
Source: Investment Strategy Group, Moody's.
the top annual returns of all time for the asset
class. What makes this performance even more
impressive is that high yield was down about 5%
at its worst point in early 2016.
But these sizable gains have come at a cost.
Spreads-which compensate investors for the risk
of default losses-now stand well below their long-
term average. In fact, the level of spreads has been
lower only a third of the time in the last 30 years.
Moreover, yields have fallen from above 10%
early last year to less than 7% now, diminishing
the allure of these bonds to investors searching for
high returns.
Even so, we think the strong fundamentals
underpinning the asset class still warrant an
overweight, though returns are almost certain to
be more modest going forward. At the heart of
this stance is our benign view on default losses,
which are the primary risk to high yield investors.
Here, several factors support our below-historical-
average 2.5% par-weighted default
forecast for 2017.
First, high yield firms stand to benefit
directly from the strengthening US
economy we expect this year, considering
almost three-quarters of their sales
originate domestically. 116 Second, leading
indicators of defaults-such as Moody's
liquidity and covenant stress indexes—
are trending downward, suggesting
fewer speculative-grade companies are
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HOUSE_OVERSIGHT_014602