Muni Bond (and Muni Bond Fund) Discussion

[jazz4cash]

I was listening to a Masters In Business podcast hosted by Barry Ritholtz on Bloomberg. On more than one occasion I’ve heard Private Equity/Hedge fund types referencing demand for munis. It surprised me because we had that stat here earlier about who owns munis and you don’t generally hear much about them in the general market discussion. Maybe I’m more attuned to the topic but one guy was saying some overseas buyers were getting in. If I can identify the sound byte I’ll post it.

[jazz4cash]

CUSIP 74444YAN4

I see a lot of things I don't quite understand in the muni listings. Here is one that is listed as a Wisconsin muni but all the underlying documentation refers to Kansas University. What am I missing?

[njhowie]

Quote:

Originally Posted by jazz4cash CUSIP 74444YAN4 I see a lot of things I don't quite understand in the muni listings. Here is one that is listed as a Wisconsin muni but all the underlying documentation refers to Kansas University. What am I missing?

This is obviously a very rare and special/unusual/unique situation.

The issuer of the bonds is the Wisconsin Public Finance Authority. Kansas University Development Corp is the borrower of the funds.

Though the language is lengthy and not transparent for the non-accounting/finance/legal person (most all of us), read the letter on page G-1 through G-3 at the very end of the official statement from their bond counsel:
https://emma.msrb.org/EP933000-ES591663-ES987393.pdf

Also, take note, in that letter, bond counsel expresses the opinion that although interest is free from federal taxes, it is not free from Wisconsin taxes.

[jazz4cash]

I guess I am curious why Kansas U would rely on a public agency in Wisconsin. If I am a resident of WI, I don't see how this benefits me. It's unusual enough to keep me away.

[Mr._Graybeard]

I've never owned a bond that was exempt of Wisconsin income tax, and I own a bunch of in-state Wisconsin bonds. A double-tax exempt in this state is a rare bird.

When I was young and dumb I invested some short-term money in a double-tax-free bond fund run by Heartland Advisors. It was volatile! It held lots of Puerto Rico paper along with other similar obligors. It took a pretty good hit to the NAV at one point, and when it bounced back I got out quickly. It looks like Heartland has since closed the fund out.

As for the Wisconsin Public Finance Authority: a lot of people wonder why this agency even exists. It was chartered by the state at the behest of four outstate counties and a small city in southwest Wisconsin, but it floats very few bonds for projects in Wisconsin. One project for the U of Kansas angered state officials there because the state hadn't authorized the building project. The PFA also sponsored bonds for a luxury housing project in Dallas that had the IRS questioning whether the borrowing should be tax free.

When I see bonds written through the PFA, I have to wonder why the borrowers have to go through it rather than more standard channels. And generally, the bond ratings reflect that. I haven't seen one yet that I'd want to put money into.

[njhowie]

Quote:

Originally Posted by jazz4cash I guess I am curious why Kansas U would rely on a public agency in Wisconsin.

The only thing that comes to mind is that financing costs were lower.

[jazz4cash]

Shenanigans.

[njhowie]

Quote:

Originally Posted by jazz4cash Shenanigans.

Not necessarily:

Quote:

Public Finance Authority Public Finance Authority (“PFA”) was created for the purpose of issuing tax-exempt and taxable conduit bonds for public and private entities nationwide. PFA is sponsored by the National Association of Counties, the National League of Cities, the Wisconsin Counties Association and the League of Wisconsin Municipalities. PFA partners with local governments to assist in the financing of public benefit projects that create temporary and permanent jobs, affordable housing, community infrastructure and improve the overall quality of life in local communities. ... PFA has issued bonds for projects in 44 states

https://www.pfauthority.org/

https://www.pfauthority.org/why-pfa/

[Mr._Graybeard]

Quote:

Originally Posted by jazz4cash Shenanigans.

No, only politics. I could say more, but that would violate forum rules.

[jazz4cash]

Not all politics is shenanigans and not all shenanigans are political but lots of overlap there.

[Mr._Graybeard]

The Milwaukee Journal Sentinel published an article a few years ago that gives some background on the agency. It's an odd, interesting story. https://www.jsonline.com/story/news/...hey/759445001/

If you google for news on "Wisconsin Public Finance Authority," there are some fairly recent stories on borrowers through the PFA. Several of those borrowers are in distress.

[jazz4cash]

Here's another topic I am curious about. This is a tax free muni issued by a state agency in Maryland to benefit a private school. Their tuition is 32k for the high school grades. The bond maturity is 14 yrs. Coupon is 3% and YTW is 2.8%. Private schools in this area all seem to be expanding/busting at the seams. I believe this is justified as supporting commercial development within the state, but I don't really see this as benefitting the general public. CUSIP is 574221LX3

https://emma.msrb.org/Security/Details/?id=574221LX3

[njhowie]

How's everyone's muni portfolios doing?

This past week, I sold a few more issues that had run up, each of which had their individual potential risks, or was providing such a low yield to maturity going forward that they no longer deserved to be held. For a couple I was able to sell posting mine in front of dealers who were selling, for a couple others that have almost no trading activity I requested bids and received very good ones for them.

Being the first of the month, I just had a bunch of calls/maturities, and so combined with the issues sold, it's put me at 9% raw cash. I feel absolutely no rush to reinvest in new bonds at this time.

I've been dabbling in some equities as prices have fallen, but just very small amounts in contrarian/safe names. It seems pretty clear to me the only thing holding the stock market up are the 5 tech giants which together account for a smidge over 20% of the S&P. I just don't see how it doesn't ultimately end in disaster.

[COcheesehead]

I have about four bonds maturing in August, one called.

Not sure what I will do with the proceeds yet. May just park it in MUB which is what I use in place of cash. 2. something % yield, easy in, easy out.

The muni’s are my least worried about part of my assets.

Happy with my entire asset pool right now. Up 6 ish % overall for the year with a conservative allocation.

[njhowie]

Check this out...

https://emma.msrb.org/Security/Details/75845HLJ0

I was the buyer on 4/22, next trade yesterday I was the seller.

[nwsteve]

Quote:

Originally Posted by njhowie Check this out... https://emma.msrb.org/Security/Details/75845HLJ0 I was the buyer on 4/22, next trade yesterday I was the seller.

WELL Done!

Do you have a particular resource to find these bonds? I have been using the Fido offerings and don't recall ever seeing a "buy" this good in last several months.

[njhowie]

Quote:

Originally Posted by nwsteve WELL Done! Do you have a particular resource to find these bonds? I have been using the Fido offerings and don't recall ever seeing a "buy" this good in last several months.

Thanks - appreciate it.

I also use Fidelity and have a couple of homegrown tools (Excel spreadsheets) to let me quickly sift through their real-time inventory focusing on the ones that interest me. You have to take this particular success with a grain of salt as 4/22 was when we were seeing the turbulence in the bond market, so there were some crazy things happening and bargains to be had. This particular bond caught my attention for a number of reasons. I sold yesterday simply because I got a good bid back - I regularly go through my portfolio and request bids on a handful of them maybe once every other week. When I calculated out the yield to maturity based on the bid, along with potential problems with the issue/issuer, it made more sense to take the money now instead of holding longer.

[Mr._Graybeard]

Quote:

Originally Posted by njhowie Check this out... https://emma.msrb.org/Security/Details/75845HLJ0 I was the buyer on 4/22, next trade yesterday I was the seller.

I have a similar bond from the Indian Trail Improvement Dist in Palm Beach County, 4.125% coupon. I bought it in 2014 expecting the call option to be executed the following year, but they never called it. It matures a year from today.

When I bought the bond it was probably had an A3 rating from Moody's, but the agency has lowered the rating a couple of times. I've read the district's annual reports, and cash flow consistently looks OK. The bond is insured, and I know sometimes the agency bases ratings in part on the strength of the insurer. Moody's doesn't offer an explanation on my Schwab site.

[COcheesehead]

Quote:

Originally Posted by njhowie Check this out... https://emma.msrb.org/Security/Details/75845HLJ0 I was the buyer on 4/22, next trade yesterday I was the seller.

I bow to the master.

[jazz4cash]

Yes I expect there will be disaster at some point but I’m pretty optimistic it won’t end that way. Muni portfolio is steady. Even the home state intermediate fund is up 1% after holding it for years.