Muni Bond (and Muni Bond Fund) Discussion

[Mr._Graybeard]

Agree - absolutely no consideration for risk. Funny thing is, they will get it sold relatively easily. Which begs the question on all of my high yielders which are currently callable but haven't been - what are they waiting for?

Hard to figure. I have a small 4% coupon bond from the Indian Trail District in Palm Beach County that has been callable since 2015. Hopefully they'll be able to come up with my principal when the bond matures in August.

 

[jazz4cash]

Hard to figure. I have a small 4% coupon bond from the Indian Trail District in Palm Beach County that has been callable since 2015. Hopefully they'll be able to come up with my principal when the bond matures in August.

I might hope they’d just keep paying the coupon for awhile till they can come up with the principal.

 

[njhowie]

Hopefully this means the end is near for the low rates/yields we've had to deal with. Seems to me this is a good signal not to buy anything at this time with maturity further out than maybe a year or two at most.

https://finance.yahoo.com/news/jpmorgan-stockpiling-cash-waiting-interest-174142959.html

 

[Mr._Graybeard]

Part of the problem is that states/munis have been reluctant to embark on capital projects. If funding for infrastructure impprovements moves forward, maybe that'll change. Then we'd see some new borrowing instead of just refinancing of current debt.

 

[njhowie]

Part of the problem is that states/munis have been reluctant to embark on capital projects. If funding for infrastructure impprovements moves forward, maybe that'll change. Then we'd see some new borrowing instead of just refinancing of current debt.

In general though, whether we're talking about munis, CDs, treasuries, or other fixed income instruments, we should (hopefully) be seeing higher rates sooner rather than later.

 

[Mr._Graybeard]

Sure, and I'm sitting on some cash myself, waiting for better rewards -- just like Jamie. I look forward to a cocktail party where I can drop the news that the JPM chief and I share a mutual strategy.

 

[njhowie]

Bond market does not believe Powell/Fed - acting as if rates will likely never be raised.

The 100 year bonds I periodically play with moved higher, yields fell to 3.1%-3.5% for maturities in the year 2110+. I sold the few I still had.

I had some 7.55% Disney corporate bonds maturing 7/15/2093 with call date 7/15/2023. Now, logic would indicate these really shouldn't be trading at more than something around 115.1 (2 years worth at 0%) - or less if you want to account for some return assuming a hold until 7/15/2023. I sold mine ~117. Disney just issued new 40 year debt at 3.8% a few weeks ago, so folks have to be foolish to believe they won't redeem 7.55% debt the first chance they get. So, whoever bought mine at 117 is guaranteed a loss, unless they can sell to a bigger fool in the next two years.

I was able to pick up a muni with 2024 maturity yielding ~3.25%, but can be called June 2022 with YTC ~0.65%. I thought those were pretty good yields for the call/maturity dates.

 

[nwsteve]

Bond market does not believe Powell/Fed - acting as if rates will likely never be raised.

The 100 year bonds I periodically play with moved higher, yields fell to 3.1%-3.5% for maturities in the year 2110+. I sold the few I still had.

I had some 7.55% Disney corporate bonds maturing 7/15/2093 with call date 7/15/2023. Now, logic would indicate these really shouldn't be trading at more than something around 115.1 (2 years worth at 0%) - or less if you want to account for some return assuming a hold until 7/15/2023. I sold mine ~117. Disney just issued new 40 year debt at 3.8% a few weeks ago, so folks have to be foolish to believe they won't redeem 7.55% debt the first chance they get. So, whoever bought mine at 117 is guaranteed a loss, unless they can sell to a bigger fool in the next two years.

NJ--Any guidelines, rules of thumbs, tools to alert a person it is time to sell their bonds. We have some with decent gains (23-24's issues) that have appreciated to point that current pricing give yields that are half of what we are getting. When I think of selling I have not seen any way I have any likelihood of replacing the yield. Thanks

 

[njhowie]

NJ--Any guidelines, rules of thumbs, tools to alert a person it is time to sell their bonds. We have some with decent gains (23-24's issues) that have appreciated to point that current pricing give yields that are half of what we are getting. When I think of selling I have not seen any way I have any likelihood of replacing the yield. Thanks

That's certainly the crux of the matter.

In general, my rule of thumb has always been to sell if the yield at my selling price is less than or equal to equivalent maturity CD. I've been a regular seller of bonds in my portfolios over the past two years as things become quite frothy and overvalued.

I've had fairly good luck finding reasonable replacements as I've gone along. Sometimes it just takes a bit of effort for a couple weeks and waiting for the right ones to show up at the right price.

 

[njhowie]

Retail muni investor gets face ripped off

Just happened this morning...


https://emma.msrb.org/Security/Details/?id=969535AJ2


Dealer steals bonds from desperate retail investor at 87.495, turns around handing them off at 101.995


Gotta be careful, friends. Don't get caught behind the 8-ball.

 

[jazz4cash]

Oh wait. I thought you meant steal literally.
Am I reading that link correctly? It looks like most of the markup was dealer to dealer. What does that mean?

 

[njhowie]

Oh wait. I thought you meant steal literally.
Am I reading that link correctly? It looks like most of the markup was dealer to dealer. What does that mean?

When you sell your bonds, you aren't selling to another customer who is buying, it's always going through a dealer, and each dealer is taking his bit of markup. After you sell to a dealer, he/she may sell to another dealer or to the ultimate customer who is buying. So, along the way there may be multiple dealer to dealer transactions.


It doesn't change the fact that in this instance, the dealer who bought from the selling retail customer paid him 87.495 when mark to market was 102.xx.


That there were 5 dealer to dealer transactions before the ultimate buyer purchased shows just how much fat there was, with the eventual buyer paying 105.04 - 20% above the sale!

 

[jazz4cash]

I didn't even see the multiple trades listed at 11:40 ahead of the customer sell. Seems really inefficient to have multiple middlemen between the customer sell and final purchase.

 

[njhowie]

I didn't even see the multiple trades listed at 11:40 ahead of the customer sell. Seems really inefficient to have multiple middlemen between the customer sell and final purchase.

There was a fintech company that was going to revolutionize the muni bond market - having direct seller to buyer transactions through their platform. As I recall, it really didn't go anywhere because their model was too complicated and they couldn't get anyone to use it.

 

[jazz4cash]

There was a fintech company that was going to revolutionize the muni bond market - having direct seller to buyer transactions through their platform. As I recall, it really didn't go anywhere because their model was too complicated and they couldn't get anyone to use it.

Well, stubhub figured out how to do it. It seems to me many fintechs are mostly about having an idea and raising money.

 

[njhowie]

Here's a recent video/segment on munis from TD. It confirms everything we've been discussing here and uses the same figures out of the Moody's muni report which I've previously referenced. Bottom line, munis are a safe/reliable investment.

https://tdameritradenetwork.com/video/rB4A-HofGaWBeiDjwl8AjA

 

[njhowie]

Graybeard - our Lee County Airport bonds were called - August 15:

https://emma.msrb.org/P21473911-P21143258-P21556680.pdf

 

[Mr._Graybeard]

Graybeard - our Lee County Airport bonds were called - August 15:

https://emma.msrb.org/P21473911-P21143258-P21556680.pdf

I hadn't been notified of that by fidelity (yet) ... the bond matured Oct 1, so they're jumping through hoops to save 45 days worth of interest. Meanwile, in alaska they're letting that 5% paper ride.

I had $30k of bonds called today. A couple-three are getting called or maturing each month through October. I'm going to be sitting on a bit of cash at the end of the year.

Some small opportunities do pop up -- I bought a $10k indiana hospital bond yesterday, CUSIP 45506DXQ3 -- 2.1% YTW with a 9/2026 call date. It won't make me rich, but at least the money is working.

 

[njhowie]

I hadn't been notified of that by fidelity (yet) ... the bond matured Oct 1, so they're jumping through hoops to save 45 days worth of interest. Meanwile, in alaska they're letting that 5% paper ride.

Mine are the 2027s, so they save a bit on mine.

I had $30k of bonds called today. A couple-three are getting called or maturing each month through October. I'm going to be sitting on a bit of cash at the end of the year.

I had two calls and one maturity today, one call coming next week.

Some small opportunities do pop up -- I bought a $10k indiana hospital bond yesterday, CUSIP 45506DXQ3 -- 2.1% YTW with a 9/2026 call date. It won't make me rich, but at least the money is working.

You got a good deal on that purchase - the purchases before and after you were at ~107.53.

Today in my IRA I purchased 64763FQK8 - New Orleans GO insured (taxable). 3.9% YTM in 2027, 1.29% YTC September next year. In my taxable account, I picked up some 2043 Forney, TX GO insured zeroes (tax free). I've been picking up a lot of these of various longer term maturities as they've been available over the past year or two, for both my taxable and IRA accounts. Maturities in 2041 through 2053 and YTM of 5.7% to 7.0% with call dates in 2023 and 2024 YTC of 1% to 2.3%. If these get called, at those times I am going to be flooded with cash.

 

[Mr._Graybeard]

You're buying up zeroes, Howie? It seems like there are a lot of them on the secondary market lately. Yields look above average if you're willing to forgo the cash flow in favor of the payoff later on.

 

[njhowie]

You're buying up zeroes, Howie? It seems like there are a lot of them on the secondary market lately. Yields look above average if you're willing to forgo the cash flow in favor of the payoff later on.

We have no intention of drawing on the funds, both IRA and taxable for another 5 years, so we do not have a need for the cash flow at this time. Further, the rest of the portfolios generate a significant amount of annual cash flow, so bottom line continues growing.

I do like the zeroes with the higher yields, and the insurance on the Forney, TX issues provides some additional comfort with the maturity dates being so far in the future. Before I bought the first ones, beyond their offering statements, I dug deep in to the economy and liked what I saw...good location, Amazon building a new facility, etc. Since then S&P did upgrade their credit rating, so that was nice to see, as it validated my research.

I think most investors shy away from the zeroes because they want the cash now, and so that leads to the higher yields with less demand for them. Certainly there is some additional risk in not receiving the cash along the way in that I'm banking it all on the payoff at maturity date. But again, the insurance mitigates some of that risk and I'm good with laddering them to produce cash flow in the maturity years.

Overall these represent 10% of our current portfolio value (at original purchase prices) - roughly 3 years worth of the cash flow the rest of the portfolio is currently throwing off.

 

[Mr._Graybeard]

We have no intention of drawing on the funds, both IRA and taxable for another 5 years, so we do not have a need for the cash flow at this time. Further, the rest of the portfolios generate a significant amount of annual cash flow, so bottom line continues growing.

I do like the zeroes with the higher yields, and the insurance on the Forney, TX issues provides some additional comfort with the maturity dates being so far in the future. Before I bought the first ones, beyond their offering statements, I dug deep in to the economy and liked what I saw...good location, Amazon building a new facility, etc. Since then S&P did upgrade their credit rating, so that was nice to see, as it validated my research.

I think most investors shy away from the zeroes because they want the cash now, and so that leads to the higher yields with less demand for them. Certainly there is some additional risk in not receiving the cash along the way in that I'm banking it all on the payoff at maturity date. But again, the insurance mitigates some of that risk and I'm good with laddering them to produce cash flow in the maturity years.

Overall these represent 10% of our current portfolio value (at original purchase prices) - roughly 3 years worth of the cash flow the rest of the portfolio is currently throwing off.

We've owned a couple of zeroes, and I was tempted to buy some Wisconsin Center District notes when they were offered ... the district owns major sports, performing arts and convention facilities in downtown Milwaukee. The yields were pretty tasty on those, and they went unloved for quite awhile at the peak of the covid outbreeak here.

The maturity/call dates on those bonds went out a little longer than I liked, though. I'm basically a hold-till-redeemed investor, not a trader. Moreover, I worry a little about zeroes' potential for added volatility. If bond values tank from rising interest rates, I may take another look.

I can understand the attraction of zero-coupon financing to the issuer -- borrow now, pay later.

 

[njhowie]

I can understand the attraction of zero-coupon financing to the issuer -- borrow now, pay later.

Would you believe that I also have a 0% bank CD? I picked it up a few years ago in the secondary market when interest rates were higher. It was issued by LaSalle Bank in Chicago, since acquired by BofA. It matures in January and the effective yield is 2.72%. I paid $897 for each $1000.

 

[njhowie]

I'm seeing some interesting CDs beginning to pop up in the secondary market - going to have to begin watching and opportunistically buying as I'm getting bored with the muni landscape. I haven't checked secondary market CDs in quite some time.

e.g. HSBC 3.125% coupon, monthly interest, maturity 12/28/2027 2.518%, call 12/28/2022 0.655% - both YTM and YTC are well in excess of new issue CDs with those maturity dates. Likelihood is they call. However, HSBC is known for botching calls. I still have an HSBC 4.125% CD that they attempted to call in Sept 2019 - but they gave the call notification too late and after they redeemed, the entire thing was reversed a couple days later. So I got my 4.125% CD back, and they are no longer able to call it - maturity Sept 2024. Similar happened on another HSBC 3.125% CD I have with June 2028 maturity, but they get another chance to call Sept 2023.

 

[Mr._Graybeard]

I've been skeptical of HSBC ever since someone at a bank branch in Mexico tried to steal $300 out of my checking account after I did a transaction there. Not that I think their CDs would be suspect, of course. But it doesn't surprise me that they would screw something up.

I'm sorry to see my muni portfolio dwindling -- as I've mentioned before I consider it a means of socially positive investing. I did pick one up yesterday, 2% YTW, 3.125% coupon, earliest call date 1/27. CUSIP 338366BR7.