Municipal Bonds

[Idnar7]

I remember reading here at one time a recommendation for the best book on Municipal Bonds. I will soon be in RMD time and would like to research these. Any reccos? Thanks

 

[brewer12345]

"The Handbook of Municipal Bonds" edited by Frank Fabozzi. Probably MBA level material, but if you can understand it you will need no other book.

 

[targatom2019]

I got about 542K in individual muni bonds and not own more then 3 of the same bond. my TWO basic requirements, AA rated or better and INSURED. I am getting around 4.4% return of around 23k a year.

build a bond ladder with different maturity dates

 

[nun]

" Probably MBA level material,

So pretty simple then.......seriously even CFA level is only tough because of the volume of the material.

 

[Big_Hitter]

So pretty simple then.......seriously even CFA level is only tough because of the volume of the material.

I had to read most of Fabozzi's Handbook of Fixed Income Securities for an exam - not that bad

It covered muni bonds.

Go for it - I have a nice muni bond portfolio myself. Most have 5% coupons.

 

[brewer12345]

So pretty simple then.......seriously even CFA level is only tough because of the volume of the material.

I wouldn't say the material is that hard, but "MBA level" to me means that the material presupposes that you have a fairly good grasp of fixed income fundamentals/finance. If you do not understand duration, convexity, basic financial statement analysis, etc. you will have a tough time.

 

[Idnar7]

Thanks for the great reccos

 

[jazz4cash]

I decided to add to this thread rather than starting a new one......
I guess I need to see if they have a Muni Bonds for Dummies book. I am headed to the library later today.

I bought my first muni bond from a local broker that called me and I am trying to get more comfortable with my purchase and this broker. I've been studying the bond tools at Fidelity and I am curious why the bond I purchased does not show up on any searches but similar bonds from the same agency do show up (with different maturities and coupons). If I do a CUSIP search, it comes right up and matches the details provided by the broker.

I would be more comfortable with an outfit like Fidelity or Zion Direct, but it seems like I would not have been able to find this bond if I did not hear from this broker. What other resources are available to find bonds that meet my needs?

 

[COcheesehead]

I decided to add to this thread rather than starting a new one......
I guess I need to see if they have a Muni Bonds for Dummies book. I am headed to the library later today.

I bought my first muni bond from a local broker that called me and I am trying to get more comfortable with my purchase and this broker. I've been studying the bond tools at Fidelity and I am curious why the bond I purchased does not show up on any searches but similar bonds from the same agency do show up (with different maturities and coupons). If I do a CUSIP search, it comes right up and matches the details provided by the broker.

I would be more comfortable with an outfit like Fidelity or Zion Direct, but it seems like I would not have been able to find this bond if I did not hear from this broker. What other resources are available to find bonds that meet my needs?

Does the bond the broker sold you provide anything unique? I guess what I am getting at is so what if you can't find it, are there other bonds that you can find that could have provided equal value? Keep in mind Fidelity charges a $1 to buy a bond. Not sure what your broker charged.

 

[Huston55]

I have FTABX in our taxable account instead of individual muni bonds. I use it in combination with a short CD ladder, for the ~10% of NW cash we keep to avoid selling equities during a downturn. I've used FTABX lately as our CD's have matured, chasing yield a bit.

When I look at it's performance versus the return on a ladder of similar individual muni bonds, it's closely equivalent. I know that a bond fund fluctuates, whereas holding individual bonds to maturity guarantees that particular bond's return. But, a bond fund is also more liquid; which seems to fit our purpose, described above.

Am I missing something by not purchasing individual muni bonds?

 

[jazz4cash]

Does the bond the broker sold you provide anything unique? I guess what I am getting at is so what if you can't find it, are there other bonds that you can find that could have provided equal value? Keep in mind Fidelity charges a $1 to buy a bond. Not sure what your broker charged.

This bond seems to have much better yield compared to similar rated bonds with similar characteristics, but that's why I need to learn more about what I'm looking at in the bond tables. I sure don't want to ignite the individual bond vs. fund debate.......I'm using a fund for the lower ladder rungs.

 

[OverThinkMuch]

I've bought some bond books in the past ("The Bond Bible", some book about retiring entirely on bonds) and looked over the individual municipal bonds available at Vanguard, but never made a purchase. Each muni bond has a unique contract and terms, and I'd rather not deal with the complexity - but this could also reflect a poor online interface.

So I stick with tax-exempt bond funds and ETFs. My current favorite is Vanguard Tax-Exempt ETF ("VTEB") with a 0.12% expense ratio (Fidelity's FTABX is 0.25% annual fee).

I think those picking a fund are giving up on saving money by buying individual bonds themselves.

 

[COcheesehead]

I've bought some bond books in the past ("The Bond Bible", some book about retiring entirely on bonds) and looked over the individual municipal bonds available at Vanguard, but never made a purchase. Each muni bond has a unique contract and terms, and I'd rather not deal with the complexity - but this could also reflect a poor online interface.

So I stick with tax-exempt bond funds and ETFs. My current favorite is Vanguard Tax-Exempt ETF ("VTEB") with a 0.12% expense ratio (Fidelity's FTABX is 0.25% annual fee).

I think those picking a fund are giving up on saving money by buying individual bonds themselves.

VTEB yields 1.66% whereas FTABX yields 2.57%. That is a pretty big difference for saving just a tad on expenses.

 

[brewer12345]

This bond seems to have much better yield compared to similar rated bonds with similar characteristics, but that's why I need to learn more about what I'm looking at in the bond tables. I sure don't want to ignite the individual bond vs. fund debate.......I'm using a fund for the lower ladder rungs.

Next time make sure you do your due diligence before you buy, not after. There are lots of reasons yield could be higher:

- Illiquidity
- maturity difference
- lower in the pecking order to get paid
- funky structure (some munis are weird to the extreme)
- callable vs. non-callable

 

[jazz4cash]

Next time make sure you do your due diligence before you buy, not after. There are lots of reasons yield could be higher:

- Illiquidity
- maturity difference
- lower in the pecking order to get paid
- funky structure (some munis are weird to the extreme)
- callable vs. non-callable

You're correct, of course and I did attempt to check as many of these boxes as my limited experience would allow. I learned a lot in the process. I guess it's a flaw in my investing style that I have to dip a toe in the water and that energizes me to do a deep dive. I went to the library today but I could not find the book you suggested (or anything similar). I submitted a request to borrow a similar manual from another branch. I got to explore our brand new high style library, too!

 

[Huston55]

I have FTABX in our taxable account instead of individual muni bonds. I use it in combination with a short CD ladder, for the ~10% of NW cash we keep to avoid selling equities during a downturn. I've used FTABX lately as our CD's have matured, chasing yield a bit.

When I look at it's performance versus the return on a ladder of similar individual muni bonds, it's closely equivalent. I know that a bond fund fluctuates, whereas holding individual bonds to maturity guarantees that particular bond's return. But, a bond fund is also more liquid; which seems to fit our purpose, described above.

Am I missing something by not purchasing individual muni bonds?

Brewer (or others with detailed bond knowledge) - Would appreciate any advice you might have here.

 

[jazz4cash]

Huston
FWIW I have gone with no bond allocation for quite a awhile. I used CD's for my bond allocation. Last year I bought SMDMX, Fido's intermediate term fund for my state. I plan to use it for near term needs and now I'm looking at individual munis for the longer term.

 

[brewer12345]

Brewer (or others with detailed bond knowledge) - Would appreciate any advice you might have here.

A pile of bonds in a fund is pretty much the same as bonds directly held.

 

[jazz4cash]

You're correct, of course and I did attempt to check as many of these boxes as my limited experience would allow. I learned a lot in the process. I guess it's a flaw in my investing style that I have to dip a toe in the water and that energizes me to do a deep dive. I went to the library today but I could not find the book you suggested (or anything similar). I submitted a request to borrow a similar manual from another branch. I got to explore our brand new high style library, too!

I learned that POS doesn't stand for what I thought it did...it's Preliminary Offering Statement, but I guess the meaning could be the same.

 

[jazz4cash]

I have FTABX in our taxable account instead of individual muni bonds. I use it in combination with a short CD ladder, for the ~10% of NW cash we keep to avoid selling equities during a downturn. I've used FTABX lately as our CD's have matured, chasing yield a bit.

When I look at it's performance versus the return on a ladder of similar individual muni bonds, it's closely equivalent. I know that a bond fund fluctuates, whereas holding individual bonds to maturity guarantees that particular bond's return. But, a bond fund is also more liquid; which seems to fit our purpose, described above.

Am I missing something by not purchasing individual muni bonds?

I believe the tax free status is generally limited to residents of the state issuing the bond. If using FTABX or another multi-state muni bond fund, I presume the fund company provides a table showing the composition of the fund. Is that correct?

 

[COcheesehead]

I believe the tax free status is generally limited to residents of the state issuing the bond. If using FTABX or another multi-state muni bond fund, I presume the fund company provides a table showing the composition of the fund. Is that correct?

They are federally tax free for all. State tax free as well if from your state.

 

[Huston55]

I believe the tax free status is generally limited to residents of the state issuing the bond. If using FTABX or another multi-state muni bond fund, I presume the fund company provides a table showing the composition of the fund. Is that correct?

It does. Cali bonds make up 8.75% of FTABX.

Since I'm at FIDO, the other alternative for me would be CMF (commission-free iShares). It has similar performance to FTABX, is exempt from Cali income tax, has a lower ER, and a longer weighted average maturity (more % rate sensitive).

I might consider that for future muni-bond purchases, since we expect to stay in Cali.

 

[JoeWras]

I believe the tax free status is generally limited to residents of the state issuing the bond. If using FTABX or another multi-state muni bond fund, I presume the fund company provides a table showing the composition of the fund. Is that correct?

Right.

With bond funds, the mutual company sends out a companion info letter with the 1099 that shows the percentage based on your state. You have to do some math at tax time, although turbotax premium now handles it in the interview if you go down the right tree.

The state tax situation is one reason I'm considering a few individual bonds, but I haven't done it yet because it is a bit intimidating to understand it all.

 

[brewer12345]

I guess I get a little uncomfortable at the idea of single state funds. If you look at some of the high income tax states, many of them have kind of shaky finances (IL, NJ, CA, etc.). These are credits I don't want to load up on. So in the interest of diversification, it isn't a horrible idea that you would buy out of state munis to save on the federal income taxes and forgo the state tax exemption.

 

[jazz4cash]

I guess I get a little uncomfortable at the idea of single state funds. If you look at some of the high income tax states, many of them have kind of shaky finances (IL, NJ, CA, etc.). These are credits I don't want to load up on. So in the interest of diversification, it isn't a horrible idea that you would buy out of state munis to save on the federal income taxes and forgo the state tax exemption.

I get that, but I live in a state (MD) with fairly high bond ratings and high state income taxes. I was looking to spread the risk among various issues with some emphasis on self funding agencies (e.g. water company revenue bonds are AAA rated). I also see at the county level some have better ratings/finances than others. I realize ratings can get downgraded.

I am still wondering if I buy a national muni bond fund, can I at least exclude the portion of income derived from bonds in my home state. I do see Fido provides a state by state breakdown so that could help with selection of a specific national muni bond fund.