Are you pulling $ out of muni funds? Why or why not?

[Austin704]

So far during this pandemic I have stayed the course in my tax-deferred accounts and stuck to my asset allocation, including a 30% total bond index position, neither buying nor selling.

In my taxable account I have a fairly substantial position in USAA intermediate tax-exempt muni fund (USATX). I’ve read about the pressures on bonds from Covid, and one area starting to get attention is state and municipal bonds. The WSJ yesterday reported:

“...The central bank is limited in its efforts to revive the $4 trillion market for municipal securities, which back everything from school facilities to stadiums and highways. The Fed has so far intervened in only a few corners of the [muni] market, which is fraught with idiosyncrasies that make it difficult to categorize debt as investment-grade or risky, the line in the sand drawn by the Fed to ascertain what it backstops during a crisis.” [State Funding Woes Are Dragging the Fed Into Muni-Market Reboot]

And that same article reports that tens of billions of $ have been pulled out of muni funds since March. The twin pressures of increasing health care costs and decreasing state and local revenues appears to be a recipe for muni defaults, with little Fed backstop.

So now I’m weighing the possibility of moving out of the muni fund into Treasuries or even short term investment grade corporate bonds (which the Fed has pledged to backstop seemingly without limit). Year to date USATX is down only 2.3%. Seems like a reasonable time to make a move if one believes there’s trouble ahead for munis.

 

[target2019]

There will also be a time when Victory Capital can raise fees on the USAA funds they purchased last year. I believe this includes every USAA branded fund. Could be wrong of course.

 

[austin944]

Have you seen this:

"The Fed announced that it would use Treasury Department funds recently authorized by Congress to buy municipal bonds and expand corporate bond-buying programs to include some lower-rated and riskier debt.
...
The Fed’s newly-announced Municipal Liquidity Facility has also been highly anticipated since Congress provided only limited relief to state and cities in its recent legislation. The markets local governments use to issue bonds and finance themselves have been in turmoil, which threatened to make it difficult for officials to fund their governments just as sales tax and other revenues dried up and the need for cash skyrocketed.

The new program will buy up to $500 billion of short term notes straight from U.S. states, counties with at least 2 million residents, and cities with a population of at least one million residents, according to the Fed release."

https://www.nytimes.com/2020/04/09/...could-pump-2-3-trillion-into-the-economy.html

Disclaimer: I have enough cash on hand to last 2-3 years of expenses before dipping into my investments. So I am not planning to make any major changes yet.

 

[Austin704]

Have you seen this:

"The Fed announced that it would use Treasury Department funds recently authorized by Congress to buy municipal bonds and expand corporate bond-buying programs to include some lower-rated and riskier debt.
...

had not seen this. Thanks for sharing.

 

[Montecfo]

I'm holding fast- in a closed end fund. But it is not a large position.

Ok tend to think Muni defaults will be muted as has been true historically.

 

[RobLJ]

I have some muni CEFs in my taxable brokerage account that I used to stash some of my yearly withdrawal in January. Two of these went down quite a bit, along with an infrastructure fund, during the crash 2-3 weeks ago, so I did some tax loss harvesting and switched to different CEF muni funds with a higher quality profile.

On this point, however, I'm not completely clear whether these would be considered "substantially equivalent" or not; for example the new infrastructure had considerably less energy bond holdings than the one I sold, although they have similar names. I've done a little research on this, but it isn't clear to me--even if they are too similar, I at least upgraded (I think). It's more straight-forward in index funds, which obviously would not qualify for tax loss harvesting, but these are actively managed closed-end funds that have a different mixture of holdings. Again, I'm not sure.

I also did some other up-grading in funds that didn't have losses; if the swap above truly generates capital gains losses, then I can offset the taxes generated here. If not, c'est la vie.

Just an idea. YMMV.

In my taxable account I have a fairly substantial position in USAA intermediate tax-exempt muni fund (USATX). I’ve read about the pressures on bonds from Covid, and one area starting to get attention is state and municipal bonds.

 

[Austin704]

This muni fund has had a small percentage loss, mostly recovered over the last couple of weeks, and should generate a tax loss that I can harvest. That will help.



Thanks for your perspective.

 

[jazz4cash]

No. I’m buying more munis but individual issues not funds. There are bargains available and I’m learning to negotiate this asset class. This whole sentiment around the bond market and misperception that “bonds are safe” has stunned me a bit on this board. I know some folks have strong preference for funds or individual bonds. I see some merit to each but I prefer individual issues.