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Old 05-13-2020, 01:52 AM   #61
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Originally Posted by jazz4cash View Post
The trade activity is not coming up right now for some reason. I see a Build America Bond notation....is that an insured bond?
Build America Bonds fall under the program which the government put into place during 2009 crisis. It means government subsidizes a portion of the interest payments through tax credits which go to the municipality. Most all of them contain a clause that should Treasury reduce or eliminate the subsidy that they have the right to immediately call the entire issue and pay it off at par at that time. Most all of the Build America Bonds contained general call provisions beginning 10 years after issuance - which began over the past two years. There are still a fair number of Build America Bonds out there, and in general, because of the comparatively high interest rates at the time, most all are being called immediately when they can be.

Some Build America Bonds do come with insurance, however, most do not.
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Old 05-13-2020, 05:32 AM   #62
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Anticipating a call is not something which can really be mastered. I've seen issuers who were relatively weak call an issue, and then I've seen strong ones not call when they had an obvious benefit to doing so. Many times I will purchase a bond that is within 3 to 6 months of the call date, offering a relatively low yield to call - maybe in the same ballpark that the equivalent CD is available for. Generally they will trade near 100.0 as folks simply expect they will be called. However, should they not call, the big upside is that you can have a nice 6% or 7% bond going forward until they do call.

I purchased a 6.2% AAA 2039 NYC muni for my mother a while back at 100.6 with only 3 months until the call date. Clearly, trading at 100.6 the expectation was that they'd be called. That was April last year when I purchased. So, unexpectedly, they didn't call and now we still have that AAA 6.2% bond. They can call whenever they like, or not at all - 6.2% is ridiculous at this time for as long as it lasts.

https://emma.msrb.org/Security/Details/?id=64971MZH8
One thing I learned from you is to dig a little deeper on bonds.
Looking for those bits of added value here and there. You are a master
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Old 05-13-2020, 11:00 PM   #63
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Luxury Dorm Financed with Muni Bonds Falls Into Bankruptcy - less than 16 months after issuance:

https://www.bloomberg.com/news/artic...nto-bankruptcy

It's the same situation as the University of Oklahoma housing project previously mentioned.

This is an example of a non-muni use of muni bonds. Note that these bonds were unrated.

Quote:
The unrated bonds were sold to qualified institutional buyers only and priced to yield 7% (with maturity) in 2038.
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Old 05-14-2020, 02:45 PM   #64
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Luxury Dorm Financed with Muni Bonds Falls Into Bankruptcy - less than 16 months after issuance:

https://www.bloomberg.com/news/artic...nto-bankruptcy

It's the same situation as the University of Oklahoma housing project previously mentioned.

This is an example of a non-muni use of muni bonds. Note that these bonds were unrated.
Not to go OT, but I a have been stunned that college dorm housing has gone so far upscale. OTOH in some markets a luxury space could be easier to convert to offer to the general public. I've been surprised at the range of projects that qualify as a muni bond. Thanks for the encouragement to dig deeper, as COcheese mentioned. This particular deal should be interesting to watch. The whole universe of college finances may be getting turned upside down.
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Old 05-22-2020, 01:04 AM   #65
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Here's another issue I purchased close to the call. This was a unique one. I purchased in November, about five weeks prior to the January 1 call date. That passed and they provided notice of the call maybe early/mid-February that it would happen mid-March. And then...they canceled the call! First time I've seen that. So, at the time of purchase, assuming the Jan 1 call, my effective yield was about 2.15% for five weeks, which was decent yield relative to comparable one month CDs. Since Jan 1, I'm getting 5.7%.

After they canceled the call, of course I was curious as to what happened. I contacted the issuer (a water utility system). They referred me to their investment advisor/underwriter, who said it was simply a matter of market conditions, and that it was not good timing for issuing the bonds being used to refinance. They would still do it, but just at a later date. Fine by me, give me the higher yield in the interim. My guess is that with interest rates continuing to decline, they can probably now issue the refinancing bonds at even lower yield than planned.

Now, clearly other folks who didn't contact the issuer or investment advisor jumped to conclusions, assuming something bad was in the works, and sold their bonds - below par. So, I was able to pick up another one of the maturities with 6.125% coupon for 99.75 (which the seller unloaded at 97.3).


https://emma.msrb.org/Security/Details/?id=840120AD1
https://emma.msrb.org/Security/Details/?id=840120AF6

https://emma.msrb.org/ER1319789-ES1061764-ER1435213.pdf

These past few weeks I've continued picking up quality high-yield issues which are ripe to be called within the coming 12 months. There were a couple of AAA issues I had to call in for Fidelity to do manually. These were actually past the call date and continuously callable, meaning they can call immediately with 30 days notice, not even waiting until the next coupon date. However, considering they hadn't been called yet, and with the virus and volatility in the markets, I figured they likely would not be initiating a call at this time. Since they trade slightly above 100.0, and after the $1/bond commission is added in, the effective yield (if called in 30 days, which Fidelity's system assumes will happen) is negative, Fidelity does not allow purchasing online. On the day I purchased last month (last trade at the link below), if it were called in 30 days, my effective yield would have been minus 1.35% (a loss of about $5.75). Today, worst case, I'm now in the green - if they call in 30 days, my effective yield is 2.05%. Beyond that, 6.038% - all gravy.

https://emma.msrb.org/Security/Details/?id=849476ME3
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Old 05-22-2020, 06:10 AM   #66
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Thanks for all the great detail. Itís a lot to digest! I had seen some Spring, TX tax free bonds show up on one of my searches but they were not as attractive as the taxable version. You made that point a few posts back. You are a master of this asset. Iím really just looking now, learning busy and preparing for a purchase in Jan. Too busy jumping hoops to move credit union IRA funds.

Did I see you or maybe Brewer mention using tax free munis in IRAs if the yields were high enough? Donít think Iíll be doing that.
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Old 05-22-2020, 06:36 AM   #67
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Did I see you or maybe Brewer mention using tax free munis in IRAs if the yields were high enough? Don’t think I’ll be doing that.
You have a very good memory. I had mentioned it, and brewer also replied just after that he had done the same.

Here is the one in particular I had bought. In this case, it made complete sense, and if I only had spare cash in a taxable account I would have jumped at it from there. However, when you review these points, it is clear that even for the tax deferred account, even though I won't get the tax free benefit from it, it is a much better credit than all of the taxable issues available at that moment:

https://emma.msrb.org/Security/Details/?id=082383MQ0

1. Pre-refunded - this means there is absolutely zero risk
https://emma.msrb.org/ES1357320-ES1057749-ES1463323.pdf - jump to last couple pages where the pre-refunded maturities are indicated

2. Redemption in 3.5 years with effective yield of 3.24%

3. Don't even look at the details of my purchase on 3/23 - just look at that summary tab and the price on 3/10 right before and 4/1 right after...and the price just last week, where the buyer is only getting 0.75%. Seeing that, I'm going to request a bid on it right now and see what comes back. If I can get 114 for it, I'll sell.
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Old 05-22-2020, 02:56 PM   #68
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Ok thanks. Thatís a lot to chew on, but chew I will.
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Old 05-22-2020, 03:44 PM   #69
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I can help you reach the conclusion very quickly.

If I offered you a 3.24% 3.5 year tax free Treasury or CD for your IRA today would you take it? Just assume there was such an animal, would you care if the underlying security was tax free? Same thing here - you'd jump at it, the yield being produced for zero risk is awesome at this time.

When the bond is pre-refunded, it is as good as a treasury, because the escrow account for it is filled with treasury securities. That's a key point - those treasuries in the escrow - they're at maybe 0.5% up to 1.5% or 2.0%, and yet, the bond it's pre-refunding yields 3.24%. Makes no sense, but this is proof positive that the market is inefficient.
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Old 05-22-2020, 03:51 PM   #70
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3. Don't even look at the details of my purchase on 3/23 - just look at that summary tab and the price on 3/10 right before and 4/1 right after...and the price just last week, where the buyer is only getting 0.75%. Seeing that, I'm going to request a bid on it right now and see what comes back. If I can get 114 for it, I'll sell.
The best bid came back at 112.4, which is low compared to where the recent sales were taking place. At that price, it would produce a yield to redemption of 1.345%, for 3.5 years, which isn't terrible. So I'll keep holding for now, maybe request another bid for it next week and see if I can get it above 113. I would want to get the yield to the redemption date down below 1.0% to sell.
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