Tax free munis - thoughts?

[freebird5825]

Freebird - My post was only in relation to the special auction municipal securities that have a 1/7/30 day cycle. Those are the ones that have been in the news as having 'failed auctions' and which are seeing the yields skyrocket. It is true that the entire municipal yield curve as a whole is trending higher due to the flight to Treasury-only. However, I don't believe that VWAHX invests a great percentage into those auction securities, so I wouldn't expect your VWAHX yield to suddenly mushroom - it might creep up 10-20 basis points as the overall muni yield curve rises, but don't plan on receiving 8% annual interest in the near future or anything crazy like that.

oh, i wish. no, it's at 4.6 annual yield something last time i checked. boring but steady.

 

[al_bundy]

maybe someone can explain this since i've never invested in munis before. i'm looking to park some money for 12 months or so and munis look OK with better than money market rates. but why is it that the NAV's have been dropping for years?

 

[freebird5825]

maybe someone can explain this since i've never invested in munis before. i'm looking to park some money for 12 months or so and munis look OK with better than money market rates. but why is it that the NAV's have been dropping for years?

wish i could help. try starting a new thread with this question...

 

[twaddle]

maybe someone can explain this since i've never invested in munis before. i'm looking to park some money for 12 months or so and munis look OK with better than money market rates. but why is it that the NAV's have been dropping for years?

What NAVs are you looking at? NAV will drop as yields go up, but muni yields have been pretty steady. At least until recently.

 

[al_bundy]

take TWTIX as an example and i also looked at a PIMCO fund and the chart is the same way

back around 2002 TWTIX NAV was around $11.2 according to Yahoo. Now it's $10.54

 

[ladelfina]

What makes ratings on munis any sounder than ratings on mortgage securities?

As RE values fall, are municipalities gonna get the cash flow they've been used to having, to back up the bonds? Falling consumer spending also = lower sales tax revenue, too?

Seems like they are gonna be between a rock (unionized local gov. workers, public pension schemes) and a hard place (Federal spending mandates on NCLB/schools, for instance).

I think munis should be riskier than in the past, yet rates seem lower. Or is all this "true" BUT entities will just tax their way out of it? Why doesn't this attitude work to keep US Treasuries afloat? Do we really trust town X to be more prudent than the Federal government?

Maybe these are all dumb questions.


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bwa ha ha.. this ties in to another thread/discussion:

Just sniffing around I wanted to see what AAA rated bonds were out there (no state specified since I live overseas). The first bond that came up was:

ADAMS CNTY COLO BLDG AUTH REV RFDG-SER B
005595CA9
Recreation Authority/Golf

 

[ats5g]

maybe someone can explain this since i've never invested in munis before. i'm looking to park some money for 12 months or so and munis look OK with better than money market rates. but why is it that the NAV's have been dropping for years?

take TWTIX as an example and i also looked at a PIMCO fund and the chart is the same way

back around 2002 TWTIX NAV was around $11.2 according to Yahoo. Now it's $10.54

Most high quality bond funds had negative [or very small positive] capital returns from 2003-2006/7, so their NAVs were dropping while yields were rising. This coincided nicely with the very positive capital returns of stocks from 2003-2006/7. As to why, my guess is that people say stocks soaring, dumped their bonds [causing yields to rise] and bought stocks.

If you're looking someplace to park money need in 12 months, I wouldn't look any further than a MM. If you're in a high tax bracket, check out Muni MM funds, like Vanguard's Tax exempt MM funds.

- Alec

 

[Art G]

If you have a high net worth, why not just buy the muni bonds themselves? Personally, if you have the time, I like laddering zero coupon muni bonds.

Too much volatility in bond funds, in my opinion. Interest rates go up, the value goes down. Interest rates go down, and your yield tends to drift down, and in the case of buying a quality bond fund, the current question regarding AMBAC and other insurance is going to absolutely kill your fund!

 

[al_bundy]

too bad the vanguard MM muni funds aren't available through Etrade. i'll have to check out other brokers. how is vanguard brokerage services? how much and how is the order execution? Etrade has been awesome lately in execution and if you run up the commissions customer service is awesome

i would rather keep all the money in one place

and i think i'll pass on the muni funds for now. too much bad news coming out, but i'll keep a watch on it

Bloomberg.com: News

 

[ziggy29]

If you have a high net worth, why not just buy the muni bonds themselves? Personally, if you have the time, I like laddering zero coupon muni bonds.

Too much volatility in bond funds, in my opinion. Interest rates go up, the value goes down. Interest rates go down, and your yield tends to drift down, and in the case of buying a quality bond fund, the current question regarding AMBAC and other insurance is going to absolutely kill your fund!

But wouldn't zeros be even riskier and even more volatile -- possibly even if you intended to hold to maturity? If these bonds went belly up in five years, with a regular bond you at least received five years of interest payments. With a zero you got nothing.

 

[Art G]

But wouldn't zeros be even riskier and even more volatile -- possibly even if you intended to hold to maturity? If these bonds went belly up in five years, with a regular bond you at least received five years of interest payments. With a zero you got nothing.

Well that is true, but I only buy AAA bonds and I guess I have to have faith that our cities won't go into default. In a muni bond fund, if that insurance goes bad, the bonds will drop and the mutual fund will fall sharply. That doesn't mean the bonds won't pay off, but you're concerned with your NAV. However, with zero's, I'm only concerned if the bonds default. I bought them for a maturity far enough into the future, that if they fluctuate in between, I'm not concerned. JMO
I guess the bottom line is that a zero is long term, a mutual fund isn't necessarily, and if the manager of the fund sells that bond at a loss, you have no say.