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Why Is My Muni-Bond Fund Showing Signs Of Life ?
Old 01-03-2019, 11:22 PM   #1
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Why Is My Muni-Bond Fund Showing Signs Of Life ?

Columbia Minnesota Tax-Exempt Fund Class A IMNTX

To lower my ‘taxable’ income for healthcare purposes, in late July 2016, I sold an underperforming, high dividend paying stock, & started accumulating this fund.

Up until November 2018, it had been pretty much straight downhill, but since that time, it’s been rallying.

Obviously I'm pleased, but with the fed raising rates recently, & announcing 2 more hikes this year, I figured it would keep going down.

Maybe I don't really understand municipal bonds.
Am I missing something ?
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Old 01-03-2019, 11:58 PM   #2
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When stocks go down bonds look more attractive and their rates drop. The Fed has only a limited ability to control this. Munis are traded in secondary markets just like corporates and other bonds so I would think they would be subject to similar market forces.
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Old 01-04-2019, 05:12 AM   #3
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The Fed has raised the Discount Rate -the interest rate charged to the commercial banks and other financial institutions for the loans they take from the Federal Reserve Bank. However, take a look at a chart of the 10 year Treasury since November. You will see a steady decline from about 3.23 to about 2.6%. That is why the value of your muni bonds/funds have increased. My asset allocation is currently 27% individual municipal bonds and has been for 20 years. I don't do funds.

Remember to keep in mind this is the very opposite direction the pundits predicted for interest rates. I don't listen to any of them because virtually every word out of their mouths is - may, could, should, possibly, significantly, get the idea. No one knows where interest rates or the markets are one.
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Old 01-04-2019, 05:27 AM   #4
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Simple. Intermediate and long term rates are dropping. Even shorter rates have pulled back a bit. Bond funds rise when this happens.

I think what you are missing is that interest rates don’t move lock-step with the Fed Funds rate. The Fed really only controls the very shortest end of the curve directly. QE unwind has probably pushed longer rates up slightly, but even that is being overwhelmed by current concerns over a slowing economy and folks rushing to the safety of bonds.
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Old 01-04-2019, 06:24 AM   #5
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All bond funds have gone up significantly in the past month or so. The prices are reacting to what human beings think are the prospects for the economy in the near future. Human beings are fickle beasts and often get predictions about the future wrong.
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Old 01-04-2019, 07:49 AM   #6
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Flight to quality.
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Old 01-04-2019, 07:55 AM   #7
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A report this morning suggests that the "bond market' is now pricing in no more rate increases in 2019. This is a change from the FOMC press release last month. It's all about expectations and not about what happened in the past.
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