Muni Bond (and Muni Bond Fund) Discussion

[njhowie]

Seems like the market is calling the Feds bluff on interest rates. Although there are two new issues coming up

that cracked 4%.

Yes, I noted those two CD issues earlier. Keep in mind that all of those CDs on your list are callable, in just 3 to 6 months from issuance. So, should rates retreat, they can easily call and reissue at lower rates very quickly.

 

[npage]

Seems like the market is calling the Feds bluff on interest rates. Although there are two new issues coming up

that cracked 4%.

Where is this screenshot and info from?

 

[madatrub]

Where is this screenshot and info from?

Fidelity Fixed Income Page

 

[njhowie]

Just received tender offer on muni.

I purchased the zero coupon bond just 2 weeks ago for mom. Tender offer from issuer represents 10% gain from purchase price.

Maturity is 10/1/2030 and YTM is 5.06%.

Expiration date on the offer is June 27, notice of results is June 28, settlement date is July 14.

I'm leaning towards taking the offer, and then just buying replacement bonds.

Key point - it's zero coupon, so it isn't throwing off any cash flow and I have the opportunity to capture two years worth of yield right now.

What would you do?

https://www.bondcompro.com/ProjectW...nvitation to Tender Bonds (Final Version).pdf

 

[COcheesehead]

Just received tender offer on muni.

I purchased the zero coupon bond just 2 weeks ago for mom. Tender offer from issuer represents 10% gain from purchase price.

Maturity is 10/1/2030 and YTM is 5.06%.

Expiration date on the offer is June 27, notice of results is June 28, settlement date is July 14.

I'm leaning towards taking the offer, and then just buying replacement bonds.

Key point - it's zero coupon, so it isn't throwing off any cash flow and I have the opportunity to capture two years worth of yield right now.

What would you do?

https://www.bondcompro.com/ProjectW...nvitation to Tender Bonds (Final Version).pdf

It’s a zero so that to me is the bigger factor because I want the cashflow. I would take it and buy something to replace it.

 

[npage]

NJhowie, I'd take the bird in hand. 10% gain today plus reinvest at 4-5% seems a no brainer to me but you guys are the experts there.

I have a question too? Anything I am missing buying a treasury over par if I wanted the higher income? I don't think so but wanted to check.

Take 912810FA1, matures 8/15/2027, Coupon 6.375, ask 114, YTW 3.382.

So for argument, buy $100,000. Cost would be $114,000, I would receive semi annual payments of $3,187.50 ($6,375/2). At maturity of 8/15/2007 would receive the $100,000 back. What happens to the $14,000 over pay for tax purposes?

 

[COcheesehead]

NJhowie, I'd take the bird in hand. 10% gain today plus reinvest at 4-5% seems a no brainer to me but you guys are the experts there.

I have a question too? Anything I am missing buying a treasury over par if I wanted the higher income? I don't think so but wanted to check.

Take 912810FA1, matures 8/15/2027, Coupon 6.375, ask 114, YTW 3.382.

So for argument, buy $100,000. Cost would be $114,000, I would receive semi annual payments of $3,187.50 ($6,375/2). At maturity of 8/15/2007 would receive the $100,000 back. What happens to the $14,000 over pay for tax purposes?

It’s a reportable bond premium. Here is how to treat it.
https://www.investopedia.com/terms/a/amortizable-bond-premium.asp

In response to the bond, with a little fishing, you can likely get a higher rate in a federal tax free, possible state and federal tax free muni.
If you go out a little further, there are some mid 4% plus muni’s which may look nice if/when rates come down.

 

[npage]

I agree on the muni, just making sure I understood this one. That is interesting, I wonder how turbo tax handles that if I just import the brokerage statement. I don't want to have to hire a tax accountant ideally.

 

[COcheesehead]

I agree on the muni, just making sure I understood this one. That is interesting, I wonder how turbo tax handles that if I just import the brokerage statement. I don't want to have to hire a tax accountant ideally.

I’d have to confirm, but I am pretty sure Turbo has ways to handle it. It’s common.

 

[COcheesehead]

https://ttlc.intuit.com/community/t...entered-box-8-amp-13-from-1099-into/00/420297

 

[npage]

Great, this is what I wanted to hear

"For tax-exempt and taxable bonds, this adjustment happens automatically when you enter the amount from Box 13 and Box 11 in the 1099-INT section of TurboTax."

 

[njhowie]

Thanks for the feedback. We're all thinking similarly.

 

[Born2Fish]

I have not purchased any Muni bonds yet.

I have built a spreadsheet to analyze cash flow, etc.

I am looking at buying Muni's in my pretax t-IRA. I have read in a few places online that it doesn't make sense to buy them in an IRA. But I want the yield. I don't need the cash in the next 20 years.

I find myself frozen about making the first Buy.

Edit: I intend to invest around $60k-80k total

A search turned up this below:

TUCSON ARIZ CTFS PARTN CTFS PARTN
GEN PURP/PUB IMPT LEASE-RENT CTFS OF PARTN Ser 2010-A, OID: 99.900, Non Callable, Subject to Income Tax, Mandatory Sinking Fund, Extraordinary Redemption Provisions, Build America Bonds Direct Pay
CUSIP: 898735PK5

How does this look?

 

[COcheesehead]

I have not purchased any Muni bonds yet.

I have built a spreadsheet to analyze cash flow, etc.

I am looking at buying Muni's in my pretax t-IRA. I have read in a few places online that it doesn't make sense to buy them in an IRA. But I want the yield. I don't need the cash in the next 20 years.

I find myself frozen about making the first Buy.

Edit: I intend to invest around $60k-80k total

A search turned up this below:

TUCSON ARIZ CTFS PARTN CTFS PARTN
GEN PURP/PUB IMPT LEASE-RENT CTFS OF PARTN Ser 2010-A, OID: 99.900, Non Callable, Subject to Income Tax, Mandatory Sinking Fund, Extraordinary Redemption Provisions, Build America Bonds Direct Pay
CUSIP: 898735PK5

How does this look?

That’s a taxable muni and can be bought in an IRA. You don’t want to buy tax free muni’s in an IRA because they will then become taxable.

 

[njhowie]

Personally, if the yield is right, I have no problem purchasing a tax free muni in my IRA. It's all relative. If the tax free is better quality, maybe comes with insurance, if the yield is close or better than similar maturity taxable, doesn't bother me, I'll buy it in the IRA.

Now, for this particular bond you've identified, it is taxable as COcheesehead indicates. But, be aware, the most you're going to collect is 4.836% (at current best offer of 104.07). Be aware that it has mandatory sinking fund redemptions of about 1/3 in July 2023, and another 1/3 in July 2024. If yours get redeemed on either of those dates, your yield (to redemption) is going to be lower than 4.836%. Apply a little statistics, and you can calculate your expected yield to redemption based on the probability yours is called on the 2023 or 2024 dates, or goes to maturity. I come up with about 3.74%.

I wouldn't jump at this issue. There's nothing wrong with it, but you should be prepared that you might only get 2.25% (at the current 104.07 best offer) if it gets redeemed next July.

 

[Born2Fish]

Personally, if the yield is right, I have no problem purchasing a tax free muni in my IRA. It's all relative. If the tax free is better quality, maybe comes with insurance, if the yield is close or better than similar maturity taxable, doesn't bother me, I'll buy it in the IRA.

Now, for this particular bond you've identified, it is taxable as COcheesehead indicates. But, be aware, the most you're going to collect is 4.836% (at current best offer of 104.07). Be aware that it has mandatory sinking fund redemptions of about 1/3 in July 2023, and another 1/3 in July 2024. If yours get redeemed on either of those dates, your yield (to redemption) is going to be lower than 4.836%. Apply a little statistics, and you can calculate your expected yield to redemption based on the probability yours is called on the 2023 or 2024 dates, or goes to maturity. I come up with about 3.74%.

I wouldn't jump at this issue. There's nothing wrong with it, but you should be prepared that you might only get 2.25% (at the current 104.07 best offer) if it gets redeemed next July.

Ugh! Too late!

Should have waited on your response.

I was not aware of the impact of mandatory sinking fund redemption. It is listed on the TDA Advanced search. I have modified my selection criteria to exclude "Sinking Fund". See list below (not sure how to paste a screenshot). Should I "Exclude" all of the listed constraints?

The reality is that I have been sitting on way too much cash in my t-IRA for a long time. If it gets called next July then at least I will earn > 0$.

I am willing to learn. Have plenty of time on my hands. I hope that I can use Muni Bonds to generate yield during these rough times.

*************************Include Exclude None
General Obligation
Build America Bonds (BABs)
Green Bonds
Escrowed To Maturity
Sinking Fund
Extraordinary Redemption
Insured
Revenue
Taxable
Bank Qualified
Callable
Subject To AMT
Putable
Pre-Refunded
Zero Coupon

I'm a little gunshy now. What search can I use that will allow me to prevent stepping on a land mine?

 

[njhowie]

Ugh! Too late!

Should have waited on your response.

I was not aware of the impact of mandatory sinking fund redemption. It is listed on the TDA Advanced search. I have modified my selection criteria to exclude "Sinking Fund". See list below (not sure how to paste a screenshot). Should I "Exclude" all of the listed constraints?

The reality is that I have been sitting on way too much cash in my t-IRA for a long time. If it gets called next July then at least I will earn > 0$.

I am willing to learn. Have plenty of time on my hands. I hope that I can use Muni Bonds to generate yield during these rough times.

*************************Include Exclude None
General Obligation
Build America Bonds (BABs)
Green Bonds
Escrowed To Maturity
Sinking Fund
Extraordinary Redemption
Insured
Revenue
Taxable
Bank Qualified
Callable
Subject To AMT
Putable
Pre-Refunded
Zero Coupon

I'm a little gunshy now. What search can I use that will allow me to prevent stepping on a land mine?

You shouldn't be gunshy - you have to get your hands dirty to learn, that's the only way it happens. With this muni you bought, regardless of the outcome, you will not lose - guaranteed. 3 years is also short-term in my view, so it is good for learning.

There is no search that will prevent you from stepping in a landmine - you have to dig in and read the official statement, review the continuing disclosure documents, and so forth. The problem with queries is that it is going to be dependent on the brokers info - and there is some disclaimer that they are not responsible for any mistakes.

However, once again, it is almost impossible for you to get yourself in to major trouble with munis - the risk is simply not there. You bought an A-rated insured issue. You can sleep well at night and not even think about it. It's going to pay and will not default.

Don't be gunshy. Be happy - you bought your first one. Keep digging. You'll do fine.

 

[Born2Fish]

You shouldn't be gunshy - you have to get your hands dirty to learn, that's the only way it happens. With this muni you bought, regardless of the outcome, you will not lose - guaranteed. 3 years is also short-term in my view, so it is good for learning.

There is no search that will prevent you from stepping in a landmine - you have to dig in and read the official statement, review the continuing disclosure documents, and so forth. The problem with queries is that it is going to be dependent on the brokers info - and there is some disclaimer that they are not responsible for any mistakes.

However, once again, it is almost impossible for you to get yourself in to major trouble with munis - the risk is simply not there. You bought an A-rated insured issue. You can sleep well at night and not even think about it. It's going to pay and will not default.

Don't be gunshy. Be happy - you bought your first one. Keep digging. You'll do fine.

Thanks.

Throughout my professional life I have discovered that people who don't make mistakes don't really do much of anything. I tend to own up to any mistakes and look at it as a learning event.

All good!

 

[COcheesehead]

I started buying bonds in earnest in 2015. You learn a lot by doing. The good thing about bonds, at least the muni’s I’ve bought, is it’s hard to really screw yourself unless you panic and do something stupid.
I have been starting to flip more of my bond portfolio. The low yielders that I have had for a few years are being sold and replaced with higher yield. I virtually doubled my ladder yield since March.

 

[njhowie]

Thanks.

Throughout my professional life I have discovered that people who don't make mistakes don't really do much of anything. I tend to own up to any mistakes and look at it as a learning event.

All good!

Let me give you an even less risky approach while just starting out with searches you can set up. It's how I first got started with munis, because I didn't know much about munis and wasn't willing to take any risk at the time.

Look in the search options TD gives you - select the radio buttons for Include Escrowed to Maturity and Pre-Refunded and none others. Don't exclude any.

These are both 100% guaranteed - money has been set aside to cover all interest and principal payments on the bonds that come back in the search. Yields will generally be lower, however, that is the price for absolutely no risk. You do still have to investigate a little, as there may still be sinking fund redemptions if the call/redemption date is a ways out. Focus on Yield to Worst - sort from high to low. You can feel confident in purchasing the one at the top of the list, regardless of the rating.

 

[npage]

Let me give you an even less risky approach while just starting out with searches you can set up. It's how I first got started with munis, because I didn't know much about munis and wasn't willing to take any risk at the time.

Look in the search options TD gives you - select the radio buttons for Include Escrowed to Maturity and Pre-Refunded and none others. Don't exclude any.

These are both 100% guaranteed - money has been set aside to cover all interest and principal payments on the bonds that come back in the search. Yields will generally be lower, however, that is the price for absolutely no risk. You do still have to investigate a little, as there may still be sinking fund redemptions if the call/redemption date is a ways out. Focus on Yield to Worst - sort from high to low. You can feel confident in purchasing the one at the top of the list, regardless of the rating.

I tried at Vanguard. If I check both I get nothing. If I just turn on Prefunded but leave Escrow off I get two. 072024WH1 and 392274W28. If I turn on escrowed but no pre funded I get 48 of them.

 

[njhowie]

I tried at Vanguard. If I check both I get nothing. If I just turn on Prefunded but leave Escrow off I get two. 072024WH1 and 392274W28. If I turn on escrowed but no pre funded I get 48 of them.

Ok, so it sounds like you need to do them individually.

You can verify that those bonds fit the criteria by confirming against EMMA:

https://emma.msrb.org/P21527651-P21181191-P21598502.pdf
https://emma.msrb.org/P31431946-P31112612-P31523547.pdf

 

[njhowie]

I noticed the same on rates yesterday - they pulled back, again with 10-year treasury looking as if it wants to head for 3.0% over the next few weeks.

And just 5 days later, here we are...10-year at 3.02% and continuing lower with the market moving towards acceptance that a recession is on the horizon.

 

[npage]

And just 5 days later, here we are...10-year at 3.02% and continuing lower with the market moving towards acceptance that a recession is on the horizon.

Beyond just "that's the market". Why is this happening? Is this basically we have priced in a fed funds rate of 3.8-4.0% and it will take something outside that to move further up? This also seems to be positively affecting muni prices, at least a couple funds I have tickers set on are up again.

 

[njhowie]

Beyond just "that's the market". Why is this happening? Is this basically we have priced in a fed funds rate of 3.8-4.0% and it will take something outside that to move further up? This also seems to be positively affecting muni prices, at least a couple funds I have tickers set on are up again.

Powell/Yellen acknowledges recession has possibility/probability of happening - most others have come to accept that a recession is guaranteed. Market does not believe rates will continue to be raised in a recessionary environment, but lowered.

Of course muni prices will move up with treasury yields going lower.