Muni Bond (and Muni Bond Fund) Discussion

[njhowie]

That Alaska bond has a nicer coupon than mine -- I got only 5%. Not that I'm complaining.

All those coupons look pretty sweet. We won't see many of those for a while.

Agreed - bittersweet to see them go...very happy for our time together as long as it lasted.

Here are some of my highest yielders still alive and kicking...every day past the call dates is a blessing.

052451AQ4 - Austin TX Airport Rental car facility 11/15/2042 5.75% - called 11/15/2022

299620EC4 - Evansville, IN 7/15/2024 5.65% - callable 5/12/2020, not called!

43612PAJ3 - Hollywood Beach, FL Parking Facility 10/1/2034 6.0%, called 10/1/2024
43612PAL8 - Hollywood Beach, FL Parking Facility 10/1/2045 6.25%, called 10/1/2024

551790CX4 - Lynwood, CA 9/1/2026 9.0% - first call date Wednesday, not called!

296357BV7 - Escondido, CA 6/1/2027 7.15% - insured callable as of 6/1/2020, not called!

581391FZ7 - McKeesport, PA 9/1/2029 5.6% - insured callable as of 9/1/2014, not called!

299620EF7 - Evansville, IN 1/15/2030 6.35% - callable as of 1/15/2020, not called!

65949KBW1 - North Gratiot, MI 5/1/2030 6.15% - callable as of 5/1/2020, not called!

924402AZ3 - Vernon, CA 9/1/2030 9.25% - first call date Wednesday, not called!

50646PBN8 - Lafayette, LA Communications System 11/1/2031 6.0% - callable as of 11/1/2021

65949KCB6 - North Gratiot, MI 5/1/2035 6.35% - callable as of 11/1/2021

261149BD9 - Dallas, TX 8/15/2036 6.21% - callable as of 5/19/2020, not called!

63165TCY9 - Nassau County, NY 4/1/2037 6.7% - partially called 3/19/2021

839856W31 - South San Antonio, TX 8/15/2037 5.74% - callable as of 8/15/2020, not called!

074527NG3 - Beaumont, TX 2/15/2038 5.81% - callable as of 2/15/2020, not called!

849476ME3 - Spring Branch, TX 2/1/2039 6.038% - callable as of 2/1/2020, not called!

13063BNT5 - California State GO, 4/1/2039 6.509% - callable as of 10/1/2021 ... highly likely to be called

790450GS3 - St. Johns, MI 5/1/2040 6.65% - callable as of 5/1/2020, not called!

953564EU1 - West Knox, TN Utility District 6/1/2040 6.9% - callable as of 6/1/2022

473484LF8 - Jefferson County, TN 6/1/2040 6.625% - callable as of 6/1/2023

646065G97 - NJ City University 7/1/2040 6.19% - callable as of 7/1/2020 - other maturity dates in the issue were called

65486NDY8 - Nixon-Smiley, TX 8/15/2040 5.604% - callable as of 8/15/2020, not called!

69372WAQ7 - Elizabeth, NJ 11/1/2040 7.0% - callable as of 11/1/2020, not called!

44372RCY2 - Hudson County, NJ 8/15/2042 6.0% - callable as of 8/15/2022

344610BY5 - Fontana, CA 9/1/2042 8.413% - callable as of 9/1/2020, not called!

953564EZ0 - West Knox, TN Utility District 6/1/2045 7.0% - callable as of 6/1/2025

Lastly, I have a lot of Forney, TX insured zeros with maturities from 2039 through 2053 with effective YTM of 5%-7%, but all are callable in August 2023 and August 2024 with YTC between 1% and 3.5% - so it will be interesting to see what happens with those.

All of the above are in my (traditional) IRA and are taxable munis, except for the Forney zeros which are all tax free.

 

[Closet_Gamer]

Here are some of my highest yielders still alive and kicking...every day past the call dates is a blessing.

I don't understand why the borrowers aren't calling these and refinancing that debt. Seems like a pretty sensible thing to do.

 

[njhowie]

I don't understand why the borrowers aren't calling these and refinancing that debt. Seems like a pretty sensible thing to do.

You and me both!

I go through all of their financial filings regularly looking for any signs of weakness that indicate some reason they may not be in a position to refinance from a risk perspective, and that's simply not the case. So, who knows the reasoning...lazy municipal administration?

For bond issues that may be close to maturity and/or too small to make a big difference, where cost to refinance would be high relative to the amount saved, sure, maybe it doesn't make sense. However, in most cases, again, it would seem to be beneficial to refinance.

 

[Closet_Gamer]

You and me both!

I go through all of their financial filings regularly looking for any signs of weakness that indicate some reason they may not be in a position to refinance from a risk perspective, and that's simply not the case. So, who knows the reasoning...lazy municipal administration?

For bond issues that may be close to maturity and/or too small to make a big difference, where cost to refinance would be high relative to the amount saved, sure, maybe it doesn't make sense. However, in most cases, again, it would seem to be beneficial to refinance.

We've all been looking for actual damage from Covid. I wonder if these debtors are now so dependent on federal supports to compensate for forgone tax revenue that they are unable to raise new debt due to questions on future revenue streams. That sort of thing might not show up in a general filing but might come to the surface on the deeper inspection associated with a new debt raise.

 

[njhowie]

We've all been looking for actual damage from Covid. I wonder if these debtors are now so dependent on federal supports to compensate for forgone tax revenue that they are unable to raise new debt due to questions on future revenue streams. That sort of thing might not show up in a general filing but might come to the surface on the deeper inspection associated with a new debt raise.

Possibly. However, I've seen many weaker municipalities able to float new issues for refinancing with ease at ridiculously low yields. If you have a 9% issue still out there, regardless of the outlook going forward, they could offer 5% in today's market, it would be oversubscribed and still reduce their servicing costs significantly.

 

[jazz4cash]

We've all been looking for actual damage from Covid. I wonder if these debtors are now so dependent on federal supports to compensate for forgone tax revenue that they are unable to raise new debt due to questions on future revenue streams. That sort of thing might not show up in a general filing but might come to the surface on the deeper inspection associated with a new debt raise.

I’ve seen a few articles indicating states are flush with cash from Federal injections as well as quicker recovery and less impact than expected. Seems more likely bad fiscal management to not refi while rates are low and balance sheet is strong.

https://www.thewesterlysun.com/news...cle_75992f0c-c724-11eb-abfe-6fb6aadb3d14.html

 

[jazz4cash]

NJH
Are you saying the calls on these have been announced ~3 yrs ahead of the actual call date? Just curious how these work.

43612PAJ3 - Hollywood Beach, FL Parking Facility 10/1/2034 6.0%, called 10/1/2024
43612PAL8 - Hollywood Beach, FL Parking Facility 10/1/2045 6.25%, called 10/1/2024

 

[njhowie]

NJH
Are you saying the calls on these have been announced ~3 yrs ahead of the actual call date? Just curious how these work.

43612PAJ3 - Hollywood Beach, FL Parking Facility 10/1/2034 6.0%, called 10/1/2024
43612PAL8 - Hollywood Beach, FL Parking Facility 10/1/2045 6.25%, called 10/1/2024

Yep - they defeased and announced the call 3 years in advance:

https://emma.msrb.org/P11435107-P11113147-P11523055.pdf

 

[Mr._Graybeard]

Fidelity posted the market-linked CDs for this month and there is a nice variety this time. There are 6 being offered, whereas it's been down in the 1 or 2 range lately. Here is the link to them:

https://fixedincome.fidelity.com/ftgw/fi/FICorpNotesDisplay?name=PPN&requestpage=FISearchAcrossOff

Like regular CDs, you can buy them in any multiple (of $1000) you like. For any you might consider, you should review the prospectus. Like muni bond prospectuses, they are lengthy, but after reading a couple, you get the feel for what you need to focus on in each. The key point is to understand the composition of the index they are using. Additionally, I think the historical/backtested returns are also important to give an idea of how the index performed through a known period of market performance.

Personally, out of the ones offered this month, I'm buying a few of the two 7 year issues with 200% participation rate (JPM and GS).

Other folks (on ER and other sites) I originally asked for feedback on these a couple years ago immediately gave up when they saw a prospectus with 70+ pages saying it was too complicated for them and wanted nothing to do with them. Others complained about the cut the issuer was getting. My view - it's guaranteed not to lose any principal. Whatever algorithms they're using, if it has a reasonable chance of performing well, then that's good enough for me for the downside protection. In the current environment, where both bonds and CDs are providing no return, the market-linked CDs give the potential for respectable returns with guarantee of no loss (assuming held to maturity).

Anyhow, it falls in to the alternatives category...I just won't post about them on the new/old alternatives thread, as I don't really want to get into a debate with some of the folks who look to pick fights. As I mentioned, for those I have purchased over the past 2 years, they have all performed exceptionally relative to my expectations...to the point where I wish I had purchased more.

I'm thinking about dipping into these structured CDs ... JPM has a 5-year with a 140% participation rate at the moment. Howie, I assume you've been watching these offerings more closely than I have. Should I wait for a higher participation rate to come along? Today, 140% is as good as it gets. Is a higher rate (like 200%) pretty unusual?

BTW, the JPM prospectus is only 11 pages, with most of the content being boilerplate disclaimers -- not a challenge at all to digest.

 

[njhowie]

I'm thinking about dipping into these structured CDs ... JPM has a 5-year with a 140% participation rate at the moment. Howie, I assume you've been watching these offerings more closely than I have. Should I wait for a higher participation rate to come along? Today, 140% is as good as it gets. Is a higher rate (like 200%) pretty unusual?

BTW, the JPM prospectus is only 11 pages, with most of the content being boilerplate disclaimers -- not a challenge at all to digest.

I haven't looked closely at that JPM - I think this is the first month it's ever been offered (CD based on that index).

140% is a very good participation rate - most important is how the index performs. Generally they are 100%. I have seen one or two where it was below 100% using straight S&P 500 index for 3 to 5 years. My view is not to be overly concerned with the participation rate if you are good with the index and its performance. If you're happy with the performance, then above 100% is going to make you very happy. I haven't looked closely at that particular JPM issue as I had my sights set on the other two which were at 200% this month (issued on Thursday last week). I'm confident there will be more of all of them in two weeks when the September batch is available.

Also, just my approach - I think the way to utilize these is to just nibble on them...laddering in essence, never overload on any one issue/index. Because the ultimate valuation is going to be determined near the maturity date, you don't want to get lower return just because the market/index may have dipped or had a correction close to it. Further, if you just nibble on a bunch of them, your risk is spread out. But again, there's no downside risk, so you can choose those with a very aggressive index and volatility and sleep well knowing you won't lose.

Dipping is the right approach in my view, even when you become very comfortable with them - two years later, and I still only dip when I buy.

 

[Mr._Graybeard]

I haven't looked closely at that JPM - I think this is the first month it's ever been offered (CD based on that index).

140% is a very good participation rate - most important is how the index performs. Generally they are 100%. I have seen one or two where it was below 100% using straight S&P 500 index for 3 to 5 years. My view is not to be overly concerned with the participation rate if you are good with the index and its performance. If you're happy with the performance, then above 100% is going to make you very happy. I haven't looked closely at that particular JPM issue as I had my sights set on the other two which were at 200% this month (issued on Thursday last week). I'm confident there will be more of all of them in two weeks when the September batch is available.

Also, just my approach - I think the way to utilize these is to just nibble on them...laddering in essence, never overload on any one issue/index. Because the ultimate valuation is going to be determined near the maturity date, you don't want to get lower return just because the market/index may have dipped or had a correction close to it. Further, if you just nibble on a bunch of them, your risk is spread out. But again, there's no downside risk, so you can choose those with a very aggressive index and volatility and sleep well knowing you won't lose.

Dipping is the right approach in my view, even when you become very comfortable with them - two years later, and I still only dip when I buy.

The index seems to be a hybrid of stocks and bonds with a 3% target appreciation rate, so quite conservative. I like keeping the term relatively short, so 5 years is about as far out as I'd care to go.

And yes, I don't expect to dive headlong into these. I've generally taken out CDs at $100K to take advantage of jumbo rates, but those are a thing of the past. I'm thinking about $25K max per CD as I get familiar with the product.

 

[jazz4cash]

Thanks for multiple mentions of this index linked CD product. I will probable take a tiny position and continue to digest the pros and cons. I do hate proprietary indices.

 

[njhowie]

Thanks for multiple mentions of this index linked CD product. I will probable take a tiny position and continue to digest the pros and cons. I do hate proprietary indices.

I don't disagree with you.

My thinking from the very beginning, and even more so today is that since interest rates are so low and we effectively get 0% on bonds and CDs, if there's even the slightest chance that any of these proprietary indexes do perform it's worth it. I really don't care how insane the index may be. You have absolutely nothing to lose with the worst case being return of principal, and you have the FDIC backing on that principal amount, just like a traditional CD.

 

[njhowie]

I'm thinking about dipping into these structured CDs ... JPM has a 5-year with a 140% participation rate at the moment. Howie, I assume you've been watching these offerings more closely than I have. Should I wait for a higher participation rate to come along? Today, 140% is as good as it gets. Is a higher rate (like 200%) pretty unusual?

BTW, the JPM prospectus is only 11 pages, with most of the content being boilerplate disclaimers -- not a challenge at all to digest.

So did you get it today?

 

[Mr._Graybeard]

So did you get it today?

Yep, we'll see how it turns out in five years. At worst I'll get my money back.

 

[jazz4cash]

I'm in also for 15K in my IRA. It's a pig in a poke, but I do trust JPM (sorta). It'll fund some fun money for a year.

 

[Mr._Graybeard]

The structured CD seems a lot like a fixed annuity with the plus of FDIC protection, but the minus being you don't know the ultimate return. I've got $100K in a 3-year fixed annuity at the moment, wouldn't mind having a similar position in these structured CDs.

 

[jazz4cash]

So, we’ve taken this easy way OT, but I see your point except how do you compare a 3yr annuity to a 5 yr S-CD? A 3 yr MYGA rated B++ is paying 2.4. My 5 yr from Dec pays 3.05. I expect the S-CD to beat that but worst case is return of principal, right? I suppose there are ways it could lose but I suspect it’d be a function of much bigger issues in the markets.

 

[njhowie]

I don't see how it loses under any circumstance - unless you try to sell before maturity, or FDIC renegs on its responsibilities. Issuing bank has the ability to call before maturity for those where they are callable, but at that time, same terms apply - either the index*participation rate or return of principal. I don't believe the JPMs were callable - I know that my Goldmans are.

 

[njhowie]

I picked up a CA municipal electric muni this morning. I had been putting bids in on it for the past week and dealer was not budging. Finally this morning the ask was about 1/2 point lower than where it was a week ago when I started bidding, so I took it. August 2025 maturity for 5.01%, callable August 2022 for 1.02%. Coupon on it is 6.375%, so likely to be called, but who knows - you all know I have a fair number that are high coupon and past the call date.

 

[Mr._Graybeard]

Longer-term interest rates seem to be edging up ever so slightly if the secondary muni market is any measure. After months of seeing YTW rates on calls in this decade topping out at 2%, I bought a Harris County water/sewer MUD bond that will pay 2.2% with a call five years out. The coupon is a little lower than I'd like at 2.65%, but it's double-barrel and insured, so I'll take the risk that it won't be redeemed immediately upon the call date.

I guess I'm working the other end of the market from Howie. I usually assume that a bond will be called before maturity ... if long-term rates take a solid bump upward, of course, I could be holding some low-yield paper here.

 

[njhowie]

I guess I'm working the other end of the market from Howie. I usually assume that a bond will be called before maturity ... if long-term rates take a solid bump upward, of course, I could be holding some low-yield paper here.

That's a good/valid approach. I keep an open mind, that they may not be called for one reason or another - and in the best case, that reason is that rates have risen...so there's less impetus to call and we can also get some nice yielding longer term issues.

As far as when the call is - I prefer that it's very near term, ideally a year or less, and simply that the yield to call beats out CD yields for that time frame. If I can get that YTC above the equivalent term CD yield, and there's a really good YTM, I'm more than happy purchasing accepting the call risk. I know I will do better than CD yields, and worst case it is called, it will happen early on so I can redeploy into something else.

 

[aja8888]

Longer-term interest rates seem to be edging up ever so slightly if the secondary muni market is any measure. After months of seeing YTW rates on calls in this decade topping out at 2%, I bought a Harris County water/sewer MUD bond that will pay 2.2% with a call five years out. The coupon is a little lower than I'd like at 2.65%, but it's double-barrel and insured, so I'll take the risk that it won't be redeemed immediately upon the call date.

I guess I'm working the other end of the market from Howie. I usually assume that a bond will be called before maturity ... if long-term rates take a solid bump upward, of course, I could be holding some low-yield paper here.

Mr_G, can you provide me with the Cusip on that bond. I can't seem to find it on Schwab. Thanks!

 

[Mr._Graybeard]

Mr_G, can you provide me with the Cusip on that bond. I can't seem to find it on Schwab. Thanks!

Sure, it's 701600PF9. I bought at 101.574.

 

[aja8888]

Sure, it's 701600PF9. I bought at 101.574.

Thanks, I'll see if Schwab has it listed.