Chart of the day: High yield vs. investment grade munis

The following is excerpted from commentary by James Colby, senior municipal strategist, fixed Income at Van Eck Global. In his latest commentary, Colby presents a chart showing the yield spreads between high-yield and investment grade munis, as measured by the Barclays Capital Municipal Bond Index and the Barclays Capital High Yield Municipal Bond Index, respectively. The yield spreads are measured as of Jan. 1, and currently. Municipal high yields, thus far in 2012, continue to be priced at attractive spreads of 399 basis points, or 127 basis points above the long-term average of the past 16 years between the two Indices. Additionally, high-yield munis are currently offering nearly 4% more in yield than investment grade munis. Looking forward, I believe that investment grade municipals will remain fairly stable given the Federal Reserve's stance. However, given the type of issuers that dominate the muni high yield space (airlines, oil services, paper, chemicals, autos, health care services, etc.), it is my opinion that if the economy improves, then a total return opportunity could be realized in high yield if the two Indices revert to their long-term average relationship of 272 basis points.