Munis --- Will this be an Opportunity?

[chinaco]

Run... Ruuuuuuuuuuuunnnnnnnnnnnnnnn, selllll, seeeeeeeeeeeelllllllllllllllllll. Says the spider to the fly... Heh heh heh (in my best Simpon's Mr Montgomery Burns voice)

Joking aside... How low does it have to go to be a ripe opportunity to make some money (i.e., discount for excessive fear and overdone).

Municipal bonds continued to sell off this week, as worried investors fled the market, and the media continued to churn out stories about state and local governments struggling with severe budget shortfalls.

Defaults, debt, decline: Muni bond fears run wild - Jan. 14, 2011


Looks like VG canceled the roll out of 3 Muni ETFs. My guess is that they will do it later when things stabilize.


http://etfdailynews.com/blog/2011/01/14/vanguard-cancels-three-planned-municipal-bond-etfs/

 

[brewer12345]

Wait for blood in the streets, full scale panic by retailers.

 

[LOL!]

A balanced article from today's WSJ on munis: Municipal Bonds: What Investors Should Do Now - WSJ.com

 

[ronin]

Put a slug into short term last week. Don't know if we'll get a flood or Chinese water torture. Keeping some powder dry in case.

 

[audreyh1]

Wait for blood in the streets, full scale panic by retailers.

That hasn't happened yet? Last week was really bad!

Audrey

 

[79protons]

That hasn't happened yet? Last week was really bad!

Audrey

really bad might be this summer if they decide to end further QE and let interest rates and inflation get back to normal levels.

 

[brewer12345]

That hasn't happened yet? Last week was really bad!

Audrey

I do not see quality munis at 10% yields yet. I also just did a search on Muni CEFs and the biggest discount to NAV I can find is 9% (I own a taxable fund with close to a 15% discount). I can wait.

 

[audreyh1]

Hmm - that is your standard? Tax-free yield of 10%? (or are you talking about CEFs?) Seems like things are pretty out of balance now considering that other FI classes haven't been punished nearly as much.

Here is a quote from Barrons - quoted on a M* forum:

Good reality check from Barrons..

"Another muni-bond pro observed that California GO bonds due in 2039, rated A-minus by Standard & Poor's, were trading at a tax-free yield of 6.10%. In comparison, fully taxable Mexican government bonds, rated triple-B rating by S&P, and Colombia's obligations, with a below-investment-grade Ba1 from Moody's, yield about 5.75%. Meanwhile, leveraged closed-end muni funds offer tax-free yields up to 8%."

But sure, if I had more $$ to invest I might wait too.

Audrey

 

[JBmadera]

I'm out, perhaps I will be proven wrong, if you ask DW that's a daily thing, but given that I live in California I wouldn't buy their debt with your money!

 

[brewer12345]

Hmm - that is your standard? Tax-free yield of 10%? (or are you talking about CEFs?) Seems like things are pretty out of balance now considering that other FI classes haven't been punished nearly as much.

Here is a quote from Barrons - quoted on a M* forum:

But sure, if I had more $$ to invest I might wait too.

Audrey

I am not a natural buyer of munis because I do not like a lot of things about them:

- typically very long maturities (strike 1)

- frequently callable (strike 2)

- often small issue sizes with low liquidity (strike 3)

So in order for me to be interested in munis, I want a really fat pitch. One must also consider the other people in the market here. Corporates blew up in the crash in part because so many of the owners of the bonds were levered up and had to meet margin calls, etc., so often bonds sold regardless of price or value. Munis have a largely retail ownership base. That removes the leverage issues, but adds in a volatile element if the financial press starts screaming too loudly, as the herd may panic and dump irrationally.

I don't know what the likelihood of a genuine panic in munis will be and I don't care to handicap it. But I want to wait for the fat pitch rather than nibble at a "good deal." When there is the strong possibility of an eventual capital gain on bonds that I would be happy to hold and clip coupons til maturity, I will be real interested.

 

[obgyn65]

After much consideration I have decided to keep my munis. The main reason is that it is my belief that cities going bankrupt will be bailed out. The damage would be too great if investors did not get their money back, as everyone would withdraw their munis money immediately if one city only goes bankrupt and cannot pay its bond holders. Again I am not a finance expert and may be totally wrong on this topic.

 

[haha]

I am not a natural buyer of munis because I do not like a lot of things about them:

- typically very long maturities (strike 1)

- frequently callable (strike 2)

- often small issue sizes with low liquidity (strike 3)

My take exactly. On form, munis are the quintessential retail investors' hidey hole, and as such are rarely truly good long term investments, although as in any other asset class there are speculative opportunities from time to time. I pass on most of these.

I might easily turn out to be 100% wrong, but I am not going to get killed doing something that doesn't make any sense to me going in.
To me, it doesn't make sense to buy any long term bonds at 6% at a time when the money supply of the entire world is being kited as never before.

YMMV.

Ha