The opportunity presented by volatility

Published date: 14th August 2025 | Author: Sean Dranfield, CEO – PT Asset Management

Global bond markets have experienced notable volatility to start 2025, particularly following President Trump’s tariff announcements on Liberation Day. Concerns around the fiscal deficit and inflation expectations have led to continued volatility, even as tariff negotiations occur. This volatility is something of interest for us to examine, particularly within our Interest Rate Offense sectors.

Yields on benchmark AAA-rated 20-year Tax-Exempt Munis are near recent historical highs.

Tax-Exempt Municipal Bonds

The current yield on a benchmark AAA-rated, 20-year Tax-Exempt Municipal bond is at levels only seen in three other instances over the last 15 years.
The spread for a 20-year Taxable Equivalent Yield compared to the 10-year U.S. Treasury Yield is at historically high levels.
The yield curve roll potential provided at the 20-year spot of the benchmark AAA curve is at levels rarely presented over the last 15 years.

The long-end of the Treasury curve offers historically high yields and attractive roll opportunity.

U.S. Treasuries

The 20-year Treasury was reintroduced in 2020. Since its reintroduction, it has typically yielded as much if not more than the 30-year Treasury because it is somewhat regarded as the “ugly stepchild” to the more favoured 10-year and 30-year bonds. While we currently favour the return potential found at the 20-year spot on the curve to the 30-year, we can use the 30-year Treasury’s longer history to illustrate relative attractiveness representing the long-end of the Treasury curve.

Excluding a few weeks in October 2023, the yield on the 30-year Treasury is the highest it’s been since 2007.
The yield curve roll presented at the 30-year spot on the curve (measured by the 30-10 spread) is at its highest potential since October 2021. At that time, rates were roughly 300 basis points lower than they are today.

Taxable Municipal Bonds

Source: PTAM as of 29.05.2025. For illustrative purposes only. Past performance is not indicative of future performance.

Taxable Municipal bonds spread off the Treasury curve and have the potential to benefit from the same steepness we love at the 20-year spot on the curve.
Selective exposure to Build America Bonds can maintain high credit quality exposure while potentially mitigating spread widening risk at a time when spreads are tight across many sectors.
The average yield on our AA-rated Taxable Munis is roughly 6% – very attractive, especially considering the high credit quality in Munis.

A key principle of Shape Management is to combine bonds with complementary characteristics in a portfolio. We consider bonds that are more interest rate sensitive to be “offense” for our portfolios. With high yields and steep, attractive slopes, some of our favourite forms of offense are among the most attractive levels seen in years.

In fact, over the last 20 years the S&P 500 has averaged a roughly 8.5% annualised return.

If rates fell moderately over the next 3 years, roughly 50 basis points a year – less than the average intra-year swing – the potential return for these bonds is in excess of 8.5%. The opportunity in our favoured Interest Rate Offense presents equity-like return potential for high quality, AA-rated bonds if rates fall moderately.

Performance Trust Total Return Bond UCITS ETF (PTAM) aims to provide exposure to U.S. bonds, while employing PT Asset Management’s Shape Management methodology to target long-term performance and consistent growth across both rising and falling rate environments.

Shape Management is an investment process that addresses these shortcomings by analysing the risk-return profile of a bond’s future cashflow.

Past performance is not indicative of future performance and when you invest in ETFs your capital is at risk.

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The opportunity presented by volatility

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