Sell Wal-Mart: buy Texas, suggests Barcap

With spreads on US taxable muni bonds touching all time highs, there may be good opportunities for investors to switch from corporate bonds into higher yielding or better quality muni debt, suggest Barclays Capital in its US Credit Alpha report published last week. For example, investors can swap the double A rated Wal-Mart 4.875% 2014 bonds for the 5.52% general obligation 2039 bonds issued by the state of Texas and which (as of the report's time of release) have an option adjusted spread of 117bp. The switch results in a 5 basis point pick-up in spread, but gives investors a bond that has a two-notch higher rating of triple A.

Pick a high double A rated bond such as the New York City Water Finance Authority’s essential service revenue bond maturing in 2042 and the spread pick-up can be 49bp.