Muni Bond (and Muni Bond Fund) Discussion

[jazz4cash]

How are Federally taxable muni bonds taxed at the state level ?

 

[njhowie]

How are Federally taxable muni bonds taxed at the state level ?

Read through this, it's covered:

http://www.msrb.org/msrb1/pdfs/About-Taxable-Municipal-Bonds.pdf

 

[jazz4cash]

Thanks I found the answer o page 1 of the link you provided:

Taxable municipal bonds can be exempt from state and local taxes for investors who reside in the state of issuance, which may cause the effective yield earned on the bond to be higher than the actual stated yield

 

[njhowie]

Anyone else want to post what they've purchased the past week or two? I love looking through official statements and financials.

I'm still looking daily and yields continue to head lower. But, I am still able to find onesie twosie type offers here and there. Still grabbing stuff which might be called near term for peanuts YTC-wise or go longer for nicer yield. I continue monitoring my holdings which have recently passed their call date and salivate with the higher yield now being collected...for as long as it lasts.

jazz4cash - here are a couple other GOs I've picked up in this bucket this week with high coupons:

13063BJB9 - CA State GO AA2 11/1/2030 7.7%
11/1/2020 YTC = 0.742%
11/1/2030 YTM = 7.4%

235308RA3 - Dallas TX AAA 2/15/2035 6.45%
2/15/2021 YTC = 0.59%
2/15/2035 YTM = 6.08%

One of the issues in this bucket I hold has been called:
413000MS6 - Harlingen TX AAA 8/15/2035 5.37%
I bought it 15 months ago and my yield to call on 8/15 will have been 3.15% - not bad.

 

[Mr._Graybeard]

Last month I bought a 5% Alaska International airport bond. Call date is very short, October, 2020, so I expect to get one payment. I'm wary of airport bonds in general now, although I hold half a dozen from before the pandemic. Alaska, though, gets a lot of freight hauled in by air, so I pin my hopes on that fact. The state's cruise ship traffic is in the Dumpster, but people do come up to hunt.

I'd take a plunge on a Memphis airport bond due to the FedEx traffic, but for the most part they're selling at a premium I'm unwilling to pay..

Another troubled asset class I dropped my line in is a 5.5% coupon bond for Gallaudet University. Maturity 2034, call date 4/2021. I'd happily hold it past the call date, but I bet Gallaudet will refi.

 

[brewer12345]

Howie, is the strategy to buy looking at the YTC but hope that they don't exercise the call? How often do they fail to exercise the call?

 

[njhowie]

Last month I bought a 5% Alaska International airport bond. Call date is very short, October, 2020, so I expect to get one payment. I'm wary of airport bonds in general now, although I hold half a dozen from before the pandemic. Alaska, though, gets a lot of freight hauled in by air, so I pin my hopes on that fact.

You and me both! I have the 10/1/2035 6.284%

I think this bond has good protections in it (rate covenant, reserve account), and is unique from other airport bonds specifically because of the freight business to Alaska and flights that stop in Alaska en route to a destination. Looking at the historical data, it's seen very good revenue growth over time, and there's little reason to doubt in the future things will not continue growing as in the past.

Anyhow, my view is that with the chaos being caused by the pandemic, there are no guarantees with the calls. Local governments, airports, and other municipal operations have lots to be concerned about and dealing with and at this time I don't really think that calling bonds and refinancings are high on their list of priorities.

 

[njhowie]

Howie, is the strategy to buy looking at the YTC but hope that they don't exercise the call? How often do they fail to exercise the call?

Yes, that's the objective. The key is to be getting a quality bond and with a yield to call which is at least what you could expect with a CD of equivalent maturity. With CD yields close to zero, there's no opportunity cost.

I've gone so far as purchasing some issues which were already past their call date, having only to provide 30 days notice to call on any day of the week they like...and having YTC being negative! I think I mentioned a couple of these earlier in the thread or on the other thread - I have a couple of AAA Texas issues which are well past their call dates, and having negative yield to call if they gave notice the day after I purchased. However, the one to two months to break even passed on all of those and I'm now in the black collecting very nice yield on AAAs.

I don't have hard numbers on how often they fail to call. However, it happens more frequently than you'd suspect. From what I've seen, whether the issuer is strong or weaker had little to do with it. I've seen weaker ones call immediately, and I've seen stronger ones not call when they had plenty of opportunity and lots of reason for it. I previously mentioned on the other thread in May:

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

That NYC AAA bond still has not been called and the soonest it could be called is 30 days from today - a full year past the call date. Why in the world would they not call this bond?

Anyhow, I think that there's opportunity with this approach. Again, I think the key is to pick up a very strong issue - so even if they don't call, you have a very solid issuer behind it. AAA munis do not default - we have the data showing this. Might that change in the future? Sure, anything is possible, but it is extremely unlikely.

 

[brewer12345]

Yes, that's the objective. The key is to be getting a quality bond and with a yield to call which is at least what you could expect with a CD of equivalent maturity. With CD yields close to zero, there's no opportunity cost.

I've gone so far as purchasing some issues which were already past their call date, having only to provide 30 days notice to call on any day of the week they like...and having YTC being negative! I think I mentioned a couple of these earlier in the thread or on the other thread - I have a couple of AAA Texas issues which are well past their call dates, and having negative yield to call if they gave notice the day after I purchased. However, the one to two months to break even passed on all of those and I'm now in the black collecting very nice yield on AAAs.

Interesting. I still have room at Navy in my add on CDs so my opportunity cost isn't quite that low. I have been buying short term munis based on TYCs, but as they mature and I can't meet my current hurdle, the money goes elsewhere. Will have to keep trawling for anything halfway decent.

 

[njhowie]

Interesting. I still have room at Navy in my add on CDs so my opportunity cost isn't quite that low. I have been buying short term munis based on TYCs, but as they mature and I can't meet my current hurdle, the money goes elsewhere. Will have to keep trawling for anything halfway decent.

True, if you have a 3% add on CD, that is certainly a better guarantee than the possibility of a call and collecting under 1% for the effort.

 

[jazz4cash]

I did a test run of this strategy and I did find a muni I would consider but it paled in comparison to the ones in Howie’s list wrt rating and YTM. Anyway I keep looking and preparing for the time when my CDs mature. I mostly have IRA funds so the tax hit is a consideration plus my add-on CDs pay 3% and 3.7% with 20-30 months till maturity.

My NYC transit munis took a ratings downgrade but they remain strong price wise.

 

[njhowie]

My NYC transit munis took a ratings downgrade but they remain strong price wise.

I just sold my 2030 NYC MTA muni. I was able to post my offer behind dealer that was selling. Dealer's sold earlier, mine just sold. I made a slim profit, though I would have been just as happy with breakeven. The rating downgrade doesn't concern me as much as the word "dire"

The status of MTA and its Related Entities operations and finances remain dire, and it continues to be extremely difficult to predict the course of these impacts due to the dynamic nature of the COVID-19 pandemic, including uncertainties relating to its (i) duration, (ii) severity and (iii) ultimate geographic spread, as well as with regard to what actions may be taken by other governmental authorities, particularly the federal government, and health care providers to contain or mitigate its impact.

https://emma.msrb.org/RE1355042-RE1053487-RE1462419.pdf

 

[COcheesehead]

I bailed on 3-4 muni’s in the last couple months. All on downgrades or outlooks that changed to negative. Total returns on all of them were positive, but I bought these as conservative investments, when they stop looking like that, see ya later.

 

[brewer12345]

Howie, I own some MTA bonds I bought as short term paper, but when they mature in 45 days or so I am done playing with them. Far too scary.

 

[jazz4cash]

There tons of NYC MTA bonds listed at Fido. Its amazing, really. I'm hanging on to mine but it is a tiny position and I don't want any more.

 

[njhowie]

Zero Coupon Munis?

Anyone holding any zero coupon munis? If so, which? What term and what yield to maturity/yield to call?

I have about 15 zero coupons. The one I hold and love most is an IL pre-refunded/defeased, GO issue that matures in December 2029 - no call allowed. They are rated AA and insured, but that is completely irrelevant since they are pre-refunded/defeased.

https://emma.msrb.org/Security/Details/?id=214183MX0

I picked mine up between March 2018 and May 2019 at prices of 62.8-68.7 giving YTM of 3.59%-4.13%. Current "value" on them is 83.475.

I also hold a couple that are long term because they were so "cheap" to purchase:

906347UT4 - Union Cnty, NJ AAA 12/1/2047, purchased Sept 2019 and May 2020 for 25.1 (YTM=4.99%) and 25.3 (YTM=5.07%), callable Dec 2025 at 30.947 for YTC=3.27% and 3.75%:
https://emma.msrb.org/Security/Details/?id=906347UT4

3464242V5 - Forney, TX AA 8/15/2040, GO purchased Dec 2019 for 28.62 (YTM=6.14%), callable August 2024 at 32.496 for YTC=2.67%:
https://emma.msrb.org/Security/Details/?id=3464242V5

The above are all taxable, while the following is tax free:
3464242N3 - Forney, TX AA 8/15/2048, insured GO purchased 4 weeks ago for 18.89 giving YTM=5.98%, callable August 2024 at 20.326 for YTC=1.63%:
https://emma.msrb.org/Security/Details/?id=3464242N3

 

[COcheesehead]

I only have one zero muni. It matures in September. Bought it in 2003. My tax free return was about 4.5% per year, but considering that was the great bull market in bonds over that time frame...like kissing my sister.

 

[brewer12345]

Finally found something to buy, a AAA-rated WV muni maturing 5/1/21 with YTM of 1.18%. No idea why the 25 bonds were priced that way, but not complaining. Would prefer to stay a little shorter, but with the credit quality of the issue and the paucity of yield available I was OK with it.

 

[jazz4cash]

I have passed on the zero munis due to lack of understanding of the de minimums rules. Another task on my learning curve.

 

[njhowie]

finally found something to buy, a aaa-rated wv muni maturing 5/1/21 with ytm of 1.18%. No idea why the 25 bonds were priced that way, but not complaining. Would prefer to stay a little shorter, but with the credit quality of the issue and the paucity of yield available i was ok with it.

cusip?

 

[brewer12345]

cusip?

95662my87

 

[njhowie]

95662my87

Dealer ripped the face off the seller he took the bonds from at 99.92, marked them up a little, and you got the benefit.

Good deal.

 

[brewer12345]

Dealer ripped the face off the seller he took the bonds from at 99.92, marked them up a little, and you got the benefit.

Good deal.

I get the impression that happens every time I buy these days. I am a bottom fishing liquidity provider.

 

[njhowie]

I get the impression that happens every time I buy these days. I am a bottom fishing liquidity provider.

It seems you've found your calling - you'll need a new nickname - maybe "Fed Jr." or "Baby Fed" or "Mini Fed".

 

[Mr._Graybeard]

With the maturity date on those WVa bonds not far off, this probably doesn't matter, but I've found housing bonds to be vulnerable to early calls. Most of the ones I find have some provision that permits calls very quickly after their issue. Single-family mortgage bonds are at the top of the list. I have a couple, and the ones I've bought had a very small price premium and are multifamily. Even then I got a partial call.