Ready
Thinks s/he gets paid by the post
I see advertisements in the LA Times every week for individual CA Municipal bonds from a securities broker. Today's ad is from "Southwest Securities", Welcome to SWS Group, Inc.. These bonds are state and federal tax free for CA residents.
They are offering two different bonds:
1) Lake Elsinore, CA USD CFD Special Tax Bonds. Coupon 5.4%, maturing 9/1/35. YTM 5.40%. Priced at 100, callable on 3/1/14 @102. $25K minimum.
2) LA Public Works Rev Bonds, coupon 5.00%, maturing 8/1/42, YTM 5.00%, priced at $100. Callable 8/1/22 @100. $25K minimum.
So at first glance, it appears these bonds are offering at least 5% returns. Yet I know this seems to good to be true, so what am I missing? I have to admit that even after reading an entire book on how to buy bonds, I still struggle with the idea of buying individual bonds, as I don't feel I'm knowledgeable enough on how to value them and assess their risk to be comfortable in doing so.
Can someone help me to decipher whether these are really paying 5%, or am I paying a premium on the NAV that effectively reduces their yield?
The Lake Elsinore bonds are not rated, and the Public Works bonds are AA-.
They are offering two different bonds:
1) Lake Elsinore, CA USD CFD Special Tax Bonds. Coupon 5.4%, maturing 9/1/35. YTM 5.40%. Priced at 100, callable on 3/1/14 @102. $25K minimum.
2) LA Public Works Rev Bonds, coupon 5.00%, maturing 8/1/42, YTM 5.00%, priced at $100. Callable 8/1/22 @100. $25K minimum.
So at first glance, it appears these bonds are offering at least 5% returns. Yet I know this seems to good to be true, so what am I missing? I have to admit that even after reading an entire book on how to buy bonds, I still struggle with the idea of buying individual bonds, as I don't feel I'm knowledgeable enough on how to value them and assess their risk to be comfortable in doing so.
Can someone help me to decipher whether these are really paying 5%, or am I paying a premium on the NAV that effectively reduces their yield?
The Lake Elsinore bonds are not rated, and the Public Works bonds are AA-.