Confused About Upcoming Maryland Municipal Bond

[MercyMe]

Fidelity emailed me some information today regarding a Maryland (where I live) bond. I'd like to understand more about this bond but after skimming all 238 pages, I still don't know whether it is a bond worth owning. It's not what I thought a "sustainability" bond would look like according to pages 8 and 9 on the PDF below. This would be my first muni bond.

http://prospectus.bondtraderpro.com/$MDCDA23A.PDF

I would not be comfortable going out more than two years (the first two listed in the attached image), because the TEY won't be as good for me when I retire at the end of this year.

Looking for some opinions on this.

 

[njhowie]

It's a high quality muni. You should simply be considering if you're happy with the yield/term. It will not default.

Having said that, do you care how the proceeds are used?

 

[Spock]

Huh. I be ignorant on munis. A respected knowledge source (njhowie) says its high quality. I read the following and wonder just what is backing this bond up. Left to my own knowledge and no other context wouldn't have touched it with a 10ft pole... but then I get queasy over the % of GSE's I'm sitting on.

The Administration has no taxing power. The Offered Bonds do not constitute
a debt of the State, any political subdivision thereof, the Administration or the
Department, or a pledge of the faith, credit or taxing power of the State, any such
political subdivision, the Administration or the Department.

 

[Texas Proud]

Looks to me to be a housing bond that will be paid back by the mortgages they issue (but only read the one page)... if this is true it is pretty safe as they normally very sure of the proceeds being enough to pay off the debt.. I do not think that states back these with general funds so no problem with the last post...



It is AA2 rated so very highly rated....

 

[njhowie]

Huh. I be ignorant on munis. A respected knowledge source (njhowie) says its high quality. I read the following and wonder just what is backing this bond up. Left to my own knowledge and no other context wouldn't have touched it with a 10ft pole... but then I get queasy over the % of GSE's I'm sitting on.

AA2 munis do not default. We're looking at a cumulative default rate of 0.02% over 10 years from issue date. That's 2 out of 10,000 issues. Do you feel that this is one of those 2? Very highly doubtful.

More to the point for OP, in the first three years, the default rate is 0.00% - never been a AA default that soon. This is not the one that will.

 

[MercyMe]

It's a high quality muni. You should simply be considering if you're happy with the yield/term. It will not default.

Having said that, do you care how the proceeds are used?

Thanks. It's not that I care about the how the proceeds are used. It is that I prefer to understand what I'm buying. If someone asked me what it is that this bond does, I'd like to be able to answer.

 

[njhowie]

Thanks. It's not that I care about the how the proceeds are used. It is that I prefer to understand what I'm buying. If someone asked me what it is that this bond does, I'd like to be able to answer.

The section on Security For the Bonds will give you the info that you're looking for...whether for this muni or any other you may have interest in going forward.

 

[imbatman]

I'm a big fan of NOT reading and understanding long detailed bond prospectuses so use MDXBX instead (at the cost of 0.49% expense ratio)

 

[njhowie]

I'm a big fan of NOT reading and understanding long detailed bond prospectuses so use MDXBX instead (at the cost of 0.49% expense ratio)

And with the kind of performance shown below, you might want to review one of the recent threads regarding owning individual (muni) bonds vs. (muni) bond funds.

We (myself and a couple other muni bond aficionados) have pointed out the case for munis a number of times - as they are so safe that there is really no necessity to read or understand anything. Pick any muni bond that has a rating beginning with A and you're done - there's less than a 1 in 1000 chance that it defaults. You are paying 0.49%, which is a huge hit in a tax free muni fund, for the privilege of sub-par performance. Do you worry about anything in life where there is less than a 1 in 1000 chance for something bad happening?

Maryland Tax-Free Bond Fund (MDXBX)

Average Annual Total Returns

............Monthly....Quarterly
.....as of 1/31/23...as of 12/31/22
1 Year....-4.72%....-9.75%
3 Year....-0.57%....-1.08%
5 Year....1.68%.......0.84%

 

[imbatman]

I have been following that with some interest and certainly the destruction wrecked in the last year on bond funds is significant and real. Lots of factors to weigh out for sure.

 

[jazz4cash]

I just dumped my Fidelity MD Muni bond fund SMDMX. It has performance similar to the one from TRP but the ER is higher @ .55. It maintained a distribution yield of ~2% which was great until the run up in rates last year. I got out with a tiny capital loss. I feel like munis are lagging a bit but I thought this one was interesting.