Muni Bond (and Muni Bond Fund) Discussion

[njhowie]

This one is funny...check out the attachment. I saw this pop up on my screen, the adrenaline spiked and I clicked buy, buy, buy quickly. It's only 2 months, but YTM came to 6.7% - so what could be bad?

We'll see if I get a call on it to bust the trade.

 

[npage]

Got it, what's you crystal ball say on likelihood of that being called during term, say 5, 10 or full 14 years out?

 

[njhowie]

Got it, what's you crystal ball say on likelihood of that being called during term, say 5, 10 or full 14 years out?

Crystal ball is foggy.

Since last time around when we were in similar position in 2018, most all of the callables at 3% or higher have been called. If you are of the mindset that we will be heading in to a recession, the question becomes how low will interest rates be taken this time? That will be the determinant of if/when these new callable CDs are called. What I am noticing is that the call dates begin only 1 year out on them, which is fairly quickly. I'm ok with that - as should they get called, they are still significantly higher yielding than what's available for shorter maturities.

I do still have my HSBC 4.125% callable step CD which matures in 2024...only because HSBC botched the one chance they had to call, and it's no longer callable.

 

[jazz4cash]

This one is funny...check out the attachment. I saw this pop up on my screen, the adrenaline spiked and I clicked buy, buy, buy quickly. It's only 2 months, but YTM came to 6.7% - so what could be bad?

We'll see if I get a call on it to bust the trade.

I’m guessing the low quantity is a factor in addition to the short maturity.

 

[npage]

Makes sense, also simple something that is so obvious when someone else says it. Worst case it is called in 12 months and you got over 4% for a year to your point making it a great rate for 12 months.

Thanks.

 

[njhowie]

Makes sense, also simple something that is so obvious when someone else says it. Worst case it is called in 12 months and you got over 4% for a year to your point making it a great rate for 12 months.

Thanks.

Exactly.

 

[njhowie]

Just picked up 556547GQ4 - 4.5 year GO, 5.73%, continuously callable

I've bought enough today, I'm done.

 

[Born2Fish]

Moody's has studied this over decades. The bottom line is that it pretty much doesn't matter. Stick to A-rated and higher and there is no safety issue.

If you want to go through the latest study, it's here:

https://www.fidelity.com/bin-public...ors-service-data-report-us-municipal-bond.pdf

I am buying some Munis for the first time on TDA, in my tIRA account.

I selected bonds&CDs:Advanced Search, selected "Municipals".

Here are the ratings options with a single "A" on the right hand side:
...
A1/A+
A2/A
A3/A-
...

When you say, "Stick to A-rated or higher", is that any rating at "A2/A" or above, or, any rating at "A3/A-" or above.

I want to make an initial purchase to get the feel of it.

 

[njhowie]

I am buying some Munis for the first time on TDA, in my tIRA account.

I selected bonds&CDs:Advanced Search, selected "Municipals".

Here are the ratings options with a single "A" on the right hand side:
...
A1/A+
A2/A
A3/A-
...

When you say, "Stick to A-rated or higher", is that any rating at "A2/A" or above, or, any rating at "A3/A-" or above.

I want to make an initial purchase to get the feel of it.

The ratings and advisement in general is to stick to investment grade. This comes from Moody's long and extensive history in tracking and reporting on munis and defaults.

Before making your initial purchase, review the Moody's report, and get comfortable with the safety of what you're purchasing. They provide numerous tables and exhibits detailing what they've seen data-wise historically as far as defaults. Also be aware, in the event of a default where there is non-payment of interest and/or principal, in general the default is ultimately remedied and bondholders are made whole. Sometimes the bondholders will lose, but it is rare, and generally in these instances, there was lots of warning, with ratings downgrades - that is, it was not unexpected.

Here is the latest Moody's report:
https://www.fidelity.com/bin-public...ors-service-data-report-us-municipal-bond.pdf

Exhibit 4 on Page 12 is the one you want to focus on. It doesn't break out A+/A/A-, just A. Look at the row for A rating, and then scan upwards - defaults are almost non-existent. There is also a clear jump/delineation moving from A to Baa. The default rate at Baa is still extremely low at 1% after 10 years, but even that is significantly higher than A or better.

 

[Born2Fish]

The ratings and advisement in general is to stick to investment grade. This comes from Moody's long and extensive history in tracking and reporting on munis and defaults.

Before making your initial purchase, review the Moody's report, and get comfortable with the safety of what you're purchasing. They provide numerous tables and exhibits detailing what they've seen data-wise historically as far as defaults. Also be aware, in the event of a default where there is non-payment of interest and/or principal, in general the default is ultimately remedied and bondholders are made whole. Sometimes the bondholders will lose, but it is rare, and generally in these instances, there was lots of warning, with ratings downgrades - that is, it was not unexpected.

Here is the latest Moody's report:
https://www.fidelity.com/bin-public...ors-service-data-report-us-municipal-bond.pdf

Exhibit 4 on Page 12 is the one you want to focus on. It doesn't break out A+/A/A-, just A. Look at the row for A rating, and then scan upwards - defaults are almost non-existent. There is also a clear jump/delineation moving from A to Baa. The default rate at Baa is still extremely low at 1% after 10 years, but even that is significantly higher than A or better.

Thanks for pointing out the page 12 table. I get it now.

 

[njhowie]

7-year 4.0% callable CDs (BMO Harris Bank) now available at Fidelity and Merrill Edge.

 

[npage]

Vanguard too. Also they have a 10 yr. callable at 4% payable monthly from First Natl. Bank of America, tempting.

 

[jazz4cash]

Rates are rising. I won’t lock into a CD over 5 yrs unlessI feel we are topping out. I did buy a 10 yr once, thought long and hard about it and it was 5% in 2011.

 

[npage]

Rates are rising. I won’t lock into a CD over 5 yrs unlessI feel we are topping out. I did buy a 10 yr once, thought long and hard about it and it was 5% in 2011.

I agree. Let me know when we are topping out

 

[COcheesehead]

Rates are rising. I won’t lock into a CD over 5 yrs unlessI feel we are topping out. I did buy a 10 yr once, thought long and hard about it and it was 5% in 2011.

I use a strategy first approach. With a ladder it doesn’t matter. I can’t guess a top. When short durations mature, I buy long. Rinse and repeat. With that process I have doubled the yield of my ladder since early Spring. Think less, earn more.

 

[npage]

I use a strategy first approach. With a ladder it doesn’t matter. I can’t guess a top. When short durations mature, I buy long. Rinse and repeat. With that process I have doubled the yield of my ladder since early Spring. Think less, earn more.

What if you were trying to lock in soon a relatively stable 7 to 10 year ladder. Would you wait say 3 to 6 months knowing where rates are going here. Or simpler, at what point do you buy long? At some point doing 3 month over and over will start to go down and we may not see the opportunity again for said 7 to 10 year ladder.?

I don't have the answer really just asking for theoretical purposes. My gut says locking in a 7 to 10 year ladder for 4 to 5% will turn out to be a pretty good move historically speaking?

 

[COcheesehead]

What if you were trying to lock in soon a relatively stable 7 to 10 year ladder. Would you wait say 3 to 6 months knowing where rates are going here. Or simpler, at what point do you buy long? At some point doing 3 month over and over will start to go down and we may not see the opportunity again for said 7 to 10 year ladder.?

I don't have the answer really just asking for theoretical purposes. My gut says locking in a 7 to 10 year ladder for 4 to 5% will turn out to be a pretty good move historically speaking?

I have a ten year target - my goal for taking social security. I buy out to 2032, sometimes 2033. So I buy long now. I am picking up 4+% double tax free muni’s now. I don’t care where rates go. I will always have fresh cash every month or two. I have doubled my bond ladder yield just from earlier this Spring. I have more cashflow than I need to fund my retirement needs. I don’t care about rates. I follow the strategy. It works. Long rates actually dropped this week.

 

[npage]

If you were building the ladder today from a pile of money to last you 10 years and did not have money coming in every 2 months? I am not challenging, genuinely interested.

I have X dollars, my goal is to maximize stability and earn over 3% on said pile for 10 years with idea being relatively equally withdrawal of pile each year to bridge to a date. Not social security but another life event. It's not the whole portfolio. It's a I want this chunk to last 10 years spending equal each year reducing to zero when another chunk comes online.

 

[COcheesehead]

If you were building the ladder today from a pile of money to last you 10 years and did not have money coming in every 2 months? I am not challenging, genuinely interested.

I have X dollars, my goal is to maximize stability and earn over 3% on said pile for 10 years with idea being relatively equally withdrawal of pile each year to bridge to a date. Not social security but another life event. It's not the whole portfolio. It's a I want this chunk to last 10 years spending equal each year reducing to zero when another chunk comes online.

My “fresh” cash comes from maturing bonds. I am retired. I have almost no other income. I follow the strategy of a ladder, reinvesting maturing bonds at the long end of the ladder. You can buy 3%+ today, actually 4% plus. Just buy long and enjoy life.

 

[npage]

That makes sense. I am just starting my ladder now and it is not intended to last forever.

 

[jazz4cash]

I use a strategy first approach. With a ladder it doesn’t matter. I can’t guess a top. When short durations mature, I buy long. Rinse and repeat. With that process I have doubled the yield of my ladder since early Spring. Think less, earn more.

I’m not guessing either. My ladder is not uniform. I skip a rung if I don’t find value. So maybe I end up with funds maturing 2, 4, and 5 years out because the 3 yr rates are not attractive and I double up on the 2’s and 4’s. A tax free muni at 4% from my high tax state is a home run all day long. I’m looking for those offers to fill rungs beyond 5 yrs. like the idea of basing it on SS. I just realized I don’t really need the ladder when SS starts which could be 6 months from now.

 

[COcheesehead]

I’m not guessing either. My ladder is not uniform. I skip a rung if I don’t find value. So maybe I end up with funds maturing 2, 4, and 5 years out because the 3 yr rates are not attractive and I double up on the 2’s and 4’s. A tax free muni at 4% from my high tax state is a home run all day long. I’m looking for those offers to fill rungs beyond 5 yrs. like the idea of basing it on SS. I just realized I don’t really need the ladder when SS starts which could be 6 months from now.

I filled my ladder uniformly from the beginning because I have no clue about the future, so I just go long when funds mature. So far, that has only increased my income.

 

[njhowie]

I have more cashflow than I need to fund my retirement needs. I don’t care about rates. I follow the strategy. It works. Long rates actually dropped this week.

Agreed. I do similar. Learned from last time around when many folks locked themselves in to the short end of the curve and rates tanked.

I noticed the same on rates yesterday - they pulled back, again with 10-year treasury looking as if it wants to head for 3.0% over the next few weeks. The yield curve is essentially flat from 2 years out to 30 years. It will likely invert as we head in to recession. Deutsche Bank has come out calling for recession sooner and deeper than others anticipate.

I buy all along the yield curve without too much regard for the rate - just that it is good at the time of purchase relative to everything else available. I don't know or care when rates will top out. I know that whenever it happens I will own some issues that are at that rate. I'm also younger than most folks around here, with a longer retirement ahead of me/us. As a result, I do not get scared out of longer term issues - I am locking in a future cash flow at rates I am happy with. If rates continue higher, that's fine with me - because again, I am assured that I will get some amount locked in at that rate too. I am not concerned with what the bottom line on my monthly statement says, because it is pretty irrelevant with a 1/99 portfolio - the stream of cash flows is most important, and working to increase it going forward.

 

[COcheesehead]

If you are short, you still have a decision of when to buy long as rates climb. If you mechanically just reinvest on the long end, you’ll likely be happier and wealthier. Especially if/when rates drop.

 

[madatrub]

I noticed the same on rates yesterday - they pulled back, again with 10-year treasury looking as if it wants to head for 3.0% over the next few weeks. The yield curve is essentially flat from 2 years out to 30 years. It will likely invert as we head in to recession. Deutsche Bank has come out calling for recession sooner and deeper than others anticipate.
.

Seems like the market is calling the Feds bluff on interest rates. Although there are two new issues coming up

that cracked 4%.