Muni Bond (and Muni Bond Fund) Discussion

[53anddone]

Interesting tidbit. I run a muni screen of my state specific bonds a couple times a week. I usually get about 1200 - 1500 results. Today - 700. Hmmmmm.

Maybe its a result of fewer new bonds due to higher rates? Haven't run my state screen in awhile I will check it out and see what I get.

 

[njhowie]

So, as periodically happens, my muni, which was pre-refunded/escrowed was supposed to be redeemed on March 1, wasn't. That morning, in the activity it did show the redemption, cash put in the account and the bond removed from my holdings. Next morning (yesterday) the activity entry was removed, the bonds back in my account and the cash taken away.

I call the fixed income folks, I get the same run around as usual. Nothing we can do, have to wait. Survey comes, I give them a piece of my mind. I go to US Bank Corporate Trust Services website as they are the trustee for this bond issue/escrow, drop them a message from their Contact Us screen. They send me a reply this morning that it's an issue with my broker. I call Fidelity fixed income again. Rep starts repeating the same basic info as the day before. I'm livid at this point. They say it's DTCC and nothing they can do. I say get someone in your department to pick up the phone and call DTCC and find out what the problem is. Rep says we usually give them 3 to 5 days to get us the money before inquiring. I tell him that's completely unacceptable. He tells me that's a risk with these bonds. I let loose on him that there is no risk, this is pre-refunded, all the money is escrowed, someone has my money, I am no longer collecting interest, and Fidelity is sitting by idly doing nothing. The rep asks what they can do? I once again say to pick up the phone and call DTCC. He offers to let me speak to a manager. I say fine, let's do that. The manager gets on the phone, and the attitude is immediately that I'm wasting his time. Begins giving me the same story that there's nothing they can do. Then he decides to add in "and technically, we don't have to give you the money for up to 10 business days". I ask him incredulously "After the redemption date"? He says yes. I tell him I need a reference for that, where is that documented? He says he doesn't have it. Obviously he's BS'ing. He says I can request it. I say fine - tell me who to contact, and he reads the main customer service address in Ohio off his screen.

I'm really beginning to get annoyed with the fixed income folks at Fidelity. The service level has been deteriorating over the past couple years. Whenever I contact them I get a run around. It's really been a few years since someone in the department gave me good/correct information or resolved an issue.

 

[Mr._Graybeard]

Yes, I think it's all on Fidelity. I never had a similar problem at Schwab.

 

[sengsational]

I'd be interested in hearing of this foot dragging on maturity at other brokerages. What government agency polices the laws? Would that be a next step? Maybe if you had details about your specific plans of opening a case with an agency, that saber rattling would get their attention.

 

[dmpi]

If you don't pay up in time the brokerage charges a 11% margin, If they don't up in time.... well...we'll just wait a few more days...

 

[njhowie]

So, as periodically happens, my muni, which was pre-refunded/escrowed was supposed to be redeemed on March 1, wasn't. That morning, in the activity it did show the redemption, cash put in the account and the bond removed from my holdings. Next morning (yesterday) the activity entry was removed, the bonds back in my account and the cash taken away.

I call the fixed income folks, I get the same run around as usual. Nothing we can do, have to wait. Survey comes, I give them a piece of my mind. I go to US Bank Corporate Trust Services website as they are the trustee for this bond issue/escrow, drop them a message from their Contact Us screen. They send me a reply this morning that it's an issue with my broker. I call Fidelity fixed income again. Rep starts repeating the same basic info as the day before. I'm livid at this point. They say it's DTCC and nothing they can do. I say get someone in your department to pick up the phone and call DTCC and find out what the problem is. Rep says we usually give them 3 to 5 days to get us the money before inquiring. I tell him that's completely unacceptable. He tells me that's a risk with these bonds. I let loose on him that there is no risk, this is pre-refunded, all the money is escrowed, someone has my money, I am no longer collecting interest, and Fidelity is sitting by idly doing nothing. The rep asks what they can do? I once again say to pick up the phone and call DTCC. He offers to let me speak to a manager. I say fine, let's do that. The manager gets on the phone, and the attitude is immediately that I'm wasting his time. Begins giving me the same story that there's nothing they can do. Then he decides to add in "and technically, we don't have to give you the money for up to 10 business days". I ask him incredulously "After the redemption date"? He says yes. I tell him I need a reference for that, where is that documented? He says he doesn't have it. Obviously he's BS'ing. He says I can request it. I say fine - tell me who to contact, and he reads the main customer service address in Ohio off his screen.

I'm really beginning to get annoyed with the fixed income folks at Fidelity. The service level has been deteriorating over the past couple years. Whenever I contact them I get a run around. It's really been a few years since someone in the department gave me good/correct information or resolved an issue.

So, likely as a result of being the squeaky wheel and pursuing contact with US Bank, later in the day on Friday (mind you, now 2 days after redemption date), they make a new EMMA filing ... on March 3, indicating full mandatory redemption of all bonds on March 1.

My thinking is that although the advanced refunding/escrow document was filed in Dec 2021, US Bank was required to officially issue a bond call notice, which they had not done yet.

https://emma.msrb.org/P21672576-P21287097-P21716542.pdf

Notice on the bottom of the page - Dated: 03-Mar-2023

Let's see how quickly I get the cash now. I received the alert of the filing from Fidelity this morning.

 

[COcheesehead]

The fixed income analysis tool at Fidelity helps me track all my maturities - all 180 of them. I watch it every couple of weeks.

 

[njhowie]

Let's see how quickly I get the cash now. I received the alert of the filing from Fidelity this morning.

Cash just posted...though I'm now somewhat gun shy in doing anything with it in case they try to take it back again!

 

[nwsteve]

Cash just posted...though I'm now somewhat gun shy in doing anything with it in case they try to take it back again!

Don't blame you for your caution. Do I correctly understand the "villain" in your journey was really US Bank not doing their job and NOT Fidelity?
thanks for the education in some of the behind the scenes machinations for payment.

 

[njhowie]

Don't blame you for your caution. Do I correctly understand the "villain" in your journey was really US Bank not doing their job and NOT Fidelity?
thanks for the education in some of the behind the scenes machinations for payment.

Yes, it would appear that US Bank made the mistake having not issued a bond call notice where one was required.

HOWEVER...I believe that when these situations arise, where payment is expected but doesn't come (it is listed at Fidelity as pre-refunded and with maturity date of March 1), the procedure shouldn't be for Fidelity to simply sit back and wait for something to magically happen by itself. How difficult would it have been for Fidelity to make the call to DTCC? DTCC would have told Fidelity "Well, we don't see a bond call notice", and then one of them would have called US Bank. Why did it need to go days after the redemption date before someone did something? And why did that someone need to be me?

So I lost 5 days of interest, or 5 days use of my money, take your pick.

A few years ago, I had a CD from Silvergate Bank (the one in the crypto news). They went a week after maturity date before they paid back the principal. I was hassling them on their Contact Us page, I filed a complaint with FDIC that they defaulted, in addition to calling the fixed income desk at Fidelity every other day. It was like nobody anywhere really cared. I thought it was comical, though in reality was really sad.

 

[jazz4cash]

Cash just posted...though I'm now somewhat gun shy in doing anything with it in case they try to take it back again!

No….just the opposite. They can’t take it back if it’s been re-deployed

 

[jazz4cash]

Yes, it would appear that US Bank made the mistake having not issued a bond call notice where one was required.

HOWEVER...I believe that when these situations arise, where payment is expected but doesn't come (it is listed at Fidelity as pre-refunded and with maturity date of March 1), the procedure shouldn't be for Fidelity to simply sit back and wait for something to magically happen by itself.

When I give someone my money, I expect them to be an advocate for me when there is a problem even if they not directly responsible. They got paid to be the middleman and should act when an issue arises. This I think is largely due to not being a significant piece of business to them. I have an advisor at Fido that I almost never use but I’d be in his face if I run into something like this even though I suspect the bond desk people are silo’d and believe their butts don’t stink.

 

[njhowie]

No….just the opposite. They can’t take it back if it’s been re-deployed

Actually, they can. In another instance with the HSBC CD which was called when they hadn't given sufficient notice and was recalled a few days later. I had deployed the cash immediately. They took it back and left the account with a negative balance of about $10k. In the next day or two they said I needed to remedy it immediately or they'd involuntarily sell something(s) in my account to pay it. Luckily, I pointed out that over the coming weekend there would be sufficient interest and other redemptions posted to cover it and they backed off.

 

[COcheesehead]

For my IRA, I have been finding some interesting short duration taxable muni bonds. Quality rated and yields above treasuries 5.4% - 5.6% annualized returns. Beats sitting in a money market and then I can reevaluate the market when they mature June - October.

 

[njhowie]

For my IRA, I have been finding some interesting short duration taxable muni bonds. Quality rated and yields above treasuries 5.4% - 5.6% annualized returns. Beats sitting in a money market and then I can reevaluate the market when they mature June - October.

Absolutely. Go on the secondary market CD screen periodically, retrieve them all and then sort yield high to low. Refresh the list every minute or so. Around the open at 8AM or close at 5PM you can sometimes find some real gems.

 

[COcheesehead]

Absolutely. Go on the secondary market CD screen periodically, retrieve them all and then sort yield high to low. Refresh the list every minute or so. Around the open at 8AM or close at 5PM you can sometimes find some real gems.

And there are more active bidders than I can remember in a long time.

 

[njhowie]

For my IRA, I have been finding some interesting short duration taxable muni bonds. Quality rated and yields above treasuries 5.4% - 5.6% annualized returns. Beats sitting in a money market and then I can reevaluate the market when they mature June - October.

Easily getting 5.4%-5.6% one and two year secondary market CDs this afternoon.

Just picked up 10 month for 5.8%

 

[COcheesehead]

Easily getting 5.4%-5.6% one and two year secondary market CDs this afternoon.

Just picked up 10 month for 5.8%

I am staying with maturities from June to December. I think yields go higher later in the year.

 

[njhowie]

I am staying with maturities from June to December. I think yields go higher later in the year.

Maybe. I prefer certainty. I won't try to guess where interest rates will be. If rates do go higher at year end, I have plenty of maturities at the time which will be looking for reinvestment. In the mean time, as you pointed out, these things are locking in yields above treasuries.

 

[jazz4cash]

What is the price setting mechanism for new issue munis?

The first muni I ever bought was new issue priced at par w/ 4% coupon. Somehow I assumed most new issues would be priced at or very near to par. I just received notice of AAA new issues in the range of 1-5 yrs/ 5% coupons/ priced at 103-112. The longer duration bonds have 4% coupons.

I’m getting the impression that some “board” is choosing a fat coupon to attract investors and letting the market set the premium. I’ve never seen new issue munis priced below par. Who gets the premium?

 

[nelsonowe]

Easily getting 5.4%-5.6% one and two year secondary market CDs this afternoon.

Just picked up 10 month for 5.8%

Wow, that sure sound good. What platform are you finding these on? My Fidelity secondary market CD screener shows a top yield of less than 5.4% for any duration. CUSIPS would be helpful, too!

 

[njhowie]

Wow, that sure sound good. What platform are you finding these on? My Fidelity secondary market CD screener shows a top yield of less than 5.4% for any duration. CUSIPS would be helpful, too!

Time is obviously of importance. On any particular day, depending on a multitude of parameters practically any yield can show at the top of the list. I only trade with Fidelity. I will at times spend 10 or 15 minutes just hitting refresh a few times a minute and be ready to pounce if something good shows near the top of the list. It can be good for an extra 0.25% to 0.5%...or possibly more if I get real lucky.

 

[njhowie]

10-year treasury now at 3.36% and continuing to trend lower. I think we'll see it back to its old happy place at 3.00% within a month or two.

 

[jazz4cash]

I am starting to see some attractive muni offerings in both new and secondary markets.

In the new offer market it seems some of my home state issuers are actually trying to make their offerings attractive.

In the secondary market, I'm seeing some tiny lots available. A max qty of 5 bonds is too tiny for me as I am averse to having dozens of issues. What size lots do others find acceptable?

 

[COcheesehead]

I am starting to see some attractive muni offerings in both new and secondary markets.

In the new offer market it seems some of my home state issuers are actually trying to make their offerings attractive.

In the secondary market, I'm seeing some tiny lots available. A max qty of 5 bonds is too tiny for me as I am averse to having dozens of issues. What size lots do others find acceptable?

If it’s a good one, I’ll take as many as I can afford. My largest position is 110, though my average is probably 25 -30 and I have some 5’s and 10’s.
I have about 180 munis. As bonds mature I am trying to consolidate more.