Muni Bond (and Muni Bond Fund) Discussion

[Family]

CDs are hanging around 4-5% but limited in duration (5 years max of late). As such, the short-term rungs on my diversified FI ladder are full.

What are your thoughts on buying Taxable Munis in a Traditional IRA to get 5%, but for much longer duration (5-15 years)?

Downsides: No FDIC insurance and duration adds risk of default. Opportunity cost.

Also, this Traditional IRA will get converted to Roth next year.

Thanks for any thoughts you may have.

 

[COcheesehead]

CDs are hanging around 4-5% but limited in duration (5 years max of late). As such, the short-term rungs on my diversified FI ladder are full.

What are your thoughts on buying Taxable Munis in a Traditional IRA to get 5%, but for much longer duration (5-15 years)?

Downsides: No FDIC insurance and duration adds risk of default. Opportunity cost.

Also, this Traditional IRA will get converted to Roth next year.

Thanks for any thoughts you may have.

A quick search shows you can get way more than 5% with a taxable muni if you want duration. I show 6%-7% 2028 or 2044. Taxable munis are really illiquid if you want out.
With all that said, I own some because the yield in some cases is too good.

 

[njhowie]

Well, I'll keep the thread from falling off the list from no activity in past 30 days.

June 1 and Dec 1 are my big interest and maturity collection days during the year. Preparing for how I'm going to redeploy the money this week.

CDs and Treasuries certainly look good short term. However, I need these kinds of yields 5, 10, and 20 years out. The CDs and treasuries don't look like they're up to the task. Yields have come up on the 5 year CDs, but they're pretty much all callable. So, still leaning towards overloading on munis when I get the cash this week.

 

[COcheesehead]

June and Dec are my big interest months too. 42% of my yearly income happens in those two months. I have less than 1% of my portfolio maturing June 1 so not too much to reinvest.

 

[GhostofTomJoad]

I've been tracking a high yield muni ETF from BlackRock: HYMU
12-month yield = 4.15%. Dunno if HY = taxable.
The taxes are not a worry for me. I don't own it. But it's MUNIS, which to my mind would be even safer than corporates like DODIX, eh? (DODIX TTM yield = 3.1%)

 

[njhowie]

I've been tracking a high yield muni ETF from BlackRock: HYMU
12-month yield = 4.15%. Dunno if HY = taxable.
The taxes are not a worry for me. I don't own it. But it's MUNIS, which to my mind would be even safer than corporates like DODIX, eh? (DODIX TTM yield = 3.1%)

I would say to be careful and not to chase yield. As we've already seen, funds, regardless of focus do not necessarily perform or have the expected risk profile the investor actually wants. If the ETF does satisfy what you're looking for, that's great. However, if you are looking for muni exposure, it's likely better to just purchase quality muni bonds directly.

 

[COcheesehead]

I've been tracking a high yield muni ETF from BlackRock: HYMU
12-month yield = 4.15%. Dunno if HY = taxable.
The taxes are not a worry for me. I don't own it. But it's MUNIS, which to my mind would be even safer than corporates like DODIX, eh? (DODIX TTM yield = 3.1%)

HYMU is paying only about 4% (very easy to obtain higher in an individual bond) and underperformed its benchmark by almost half. It’s selling at a premium to NAV.
DODIX is paying 4.5%, again way under the yield of individual issues.

I personally wouldn’t buy either.

 

[njhowie]

It’s selling at a premium to NAV.

That's the other issue I have with funds in the muni space...the NAV. Like our portfolios, the NAV for a muni fund is going to be comprised of all the holdings - at mark-to-market. However, we know that number is not necessarily indicative of the correct price for a bond - what you could buy or sell the bond at. So, if you purchase the bonds directly, you have complete control over the price you pay. However, with the fund, the NAV is likely not completely truly representative of the prices the underlying bonds can be bought/sold at. With a stock fund, the price you pay is going to be the actual NAV - the last price for each stock the fund holds, that's the real price at the time. Not necessarily the case for a muni fund, whether buying or selling.

 

[jazz4cash]

My home state muni fund stumbled right after I bought it. Over 15 months it nearly recovered and stumbled again. I bailed after 2 yrs.
Are there any decent muni MM funds out there?

 

[Mr._Graybeard]

I got a bond call that takes effect tomorrow, the first one I've seen in quite a while. It has a 5% coupon, so no surprise that it wasn't going to last until maturity. I still have two or three more 5-percenters that have passed the earliest call date. I suppose their redemptions aren't too far off.

 

[COcheesehead]

I got a bond call that takes effect tomorrow, the first one I've seen in quite a while. It has a 5% coupon, so no surprise that it wasn't going to last until maturity. I still have two or three more 5-percenters that have passed the earliest call date. I suppose their redemptions aren't too far off.

I have bunches of 5% coupon bonds, but the first call date is still years down the road. I even have some 5.25% and 6% coupons with longer call dates.
The only calls have have had recently have been 6%+ agency bonds.

The good news is you still have a rich pool of bonds to reinvest in.

 

[jazz4cash]

How do they notify when a bond is called? I get lots of alerts logging in from laptop but I mostly use the mobile app. I don’t recall getting any bond alerts from my phone.

 

[COcheesehead]

For Fidelity it’s just a message in my account no matter how I access the site.

 

[GhostofTomJoad]

Seems to me, governments, even local and/or State governments, are a safer bet than corporates. But that's just a statement based on the permanence of governmental institutions. And there are exceptions: Stockton, CA defaulted. It was a wreck. I have been tracking an ETF: HYMU. "High Yield" Munis from BlackRock. i thought: "Junk" munis The yield is at the moment 4.15%. That's damn good, tax-free.

My own bonds are 35% of the portfolio. Within that 35%, 66% is corporate junk. TUHYX and PRCPX. And ETF HYDB, also BlackRock. I like the yields.

The talking heads I hear say that junk bond-issuing companies are in a better place financially than they were before the Crash of '08-'09. I listen to their reasoning, and it makes sense to me. Nevertheless, MOST other talking heads are recommending I.G.

Having bought TUHYX at just the WRONG time, I'm holding on for the dividends and reinvesting it all. Everything I have, I reinvest the profits. I don't need them. In January, I pull a small chunk from the T-IRA each year. Taxes are not a consideration here at our house.

Maybe HYMU is worth a look for the rest of you? Even if one does not need the tax advantage of munis, maybe the fund is investible, anyhow?

 

[njhowie]

4.15% certainly is good tax free. However, the fund can easily fall 4.15% or more and lose more than the annual 4.15%, with no guarantee of ever being able to exit with a net gain.

 

[COcheesehead]

4.15% certainly is good tax free. However, the fund can easily fall 4.15% or more and lose more than the annual 4.15%, with no guarantee of ever being able to exit with a net gain.

Yep and therein lies the danger of bond funds vs individual issues - no par to return to.

 

[jazz4cash]

4.15 for a junk muni is not adequate compensation for the risk IMO. Maybe if I had the skill to pick through the holdings and evaluate. There are issuers that are assumed to be headed to default but no one knows when or if it will actually happen. Detroit and PR in recent past. I am avoiding all bond funds but I think you could make a case that a fund mitigates risk from a few issues, but again 4.15 is way too low for me.

 

[COcheesehead]

Fidelity is showing no fee, HY muni funds that pay up to 4.9%. So 4.15% for the risk is low. I can buy individual issues, double tax free, paying more at a higher quality level.

 

[COcheesehead]

I had a some bonds mature today (and a boatload of tax free interest hit my account), but I noticed I can now buy munis - 5 month duration - yielding over 4%. I don’t think I ever remember seeing that.

 

[phil1ben]

What are peoples views on individual agency debt as opposed to treasuries. Talking about FHLB or FFCB. If I buy a 5 year (callable every three months) Agency bond I normally can get 60-80bps more than a 3-6 month zero coupon treasury. I realize that the agency bond is taxable state and the treasury is not but I am in a relatively low tax state.

Any reason not to take the better yield of the agency bond?

 

[COcheesehead]

What are peoples views on individual agency debt as opposed to treasuries. Talking about FHLB or FFCB. If I buy a 5 year (callable every three months) Agency bond I normally can get 60-80bps more than a 3-6 month zero coupon treasury. I realize that the agency bond is taxable state and the treasury is not but I am in a relatively low tax state.

Any reason not to take the better yield of the agency bond?

Higher coupon agency bonds are very likely to be called, so as long as you understand that. I buy them for superior short term returns, but every one I’ve owned with a 6%+ coupon that has reached its call window has been called.
There are secondary market issues selling below par that may provide a combination of coupon and increased principal at maturity that are less likely to be called because their coupon is below current rates. I own some of those as well.

 

[jazz4cash]

What are peoples views on individual agency debt as opposed to treasuries. Talking about FHLB or FFCB. If I buy a 5 year (callable every three months) Agency bond I normally can get 60-80bps more than a 3-6 month zero coupon treasury. I realize that the agency bond is taxable state and the treasury is not but I am in a relatively low tax state.



Any reason not to take the better yield of the agency bond?

This thread is more focused on munis. There are many posts about agency bonds in the Treasury Bill, Notes, and Bonds thread.

 

[njhowie]

So, here is a new one...

Just received a call from Fidelity bond desk. Went to voicemail since I happened to be taking care of some "business". The ambiguous message is about a bond trade on 6/5. Says to call by 3PM so they can resolve otherwise the trade may be canceled. I check, only bought one bond on Monday. So I'm expecting that they're going to give me the standard line that the dealer messed up and they have to cancel the trade.

So I call back, and the rep says that the dealer is actually short and they don't have the bond. So again, I expect he's going to say they have to cancel it. But he says the dealer is offering to cover and buy it back and they would wave the commission on the trade. The price dealer is willing to buy back at is about 1 point higher than what I paid. Works for me. Go ahead. Just waiting to see it post and what my profit is.

Update: Transaction just posted. $49.50 profit for 4 days.

 

[njhowie]

Well, they adjusted again...additionally giving me $5 credit for the original trade commission...so add $5 to profit...$54.50.

So, to summarize, I collected:
0.1 from dealer = $50
$4.50 interest

The interesting part as I'm thinking about it - the $4.50 interest. I never really owned the bonds. Dealer didn't have them. So I guess, as part of covering his short position on my bonds, the dealer had to cough up the interest as well. This was essentially a naked short on the part of the dealer. Even more surprised that they didn't simply cancel the trade as they normally do.

 

[jazz4cash]

Interesting. Thanks for posting something I never imagined could happen. I wonder how short they were and how you were picked to get bought out. How many bonds were listed as being available when you placed your order?