Muni Bond (and Muni Bond Fund) Discussion

[COcheesehead]

As I've pointed out over the past several months - 3.0% for the 10-year seems to be the resistance point. It can get there and even above for a short period, but then it gets smacked back down. We'll see if that continues to hold - I believe it will. I think after the hike, we'll see it move higher again for a short while before going back down. I'm hoping that's what happens once again, with some short-term volatility and we'll get another short period of higher yields for new purchases.

I have $130,000 maturing in late Fall, probably too much to ask for a spike then.

 

[aja8888]

Thoughts on new Muni Bond issue - 613772PKK1

CUSIP is in error in title. It's 61372PKK1


Area being developed is just 20 miles north of us in a great location and probably one of the most desirable areas in Texas (75 miles north of Houston). Homes are sold/rented almost immediately and the MUD districts control the water resources and revenue is collected via taxes. Bonds are insured.

The bonds will be issued 8/11/2022 and yield to worst is 2.879% callable 4/2/2027 @$100. Maturity is 4/1/2028. Coupon @ 5.75% paid semi-annually. Rated AA/A1.

I can't find much better. Min purchase is $25 K.

Thoughts?

 

[sengsational]

I haven't looked lately, but when I checked new issues of munis vs the secondary market, the new issues rates seemed to be somewhat lower. I just did a screen of what I think might be similar, and it looks like the 2.879% YTW is in line with these.

 

[aja8888]

I haven't looked lately, but when I checked new issues of munis vs the secondary market, the new issues rates seemed to be somewhat lower. I just did a screen of what I think might be similar, and it looks like the 2.879% YTW is in line with these.

Thanks, that's what I was seeing too. Maybe with this week's anticipated raise in the Fed Funds Rate, these issues may see lower pricing based on the YTW.

I'm sitting on the fence as to buying the bond now or waiting to see what happens after this week. The bond will fund early August so there is time.

 

[njhowie]

aja - can you double check that CUSIP? You have too many characters. Maybe it's 613772PK1?

Based on what you indicate as YTW, these are clearly being offered at a premium, above 100. Working backwards, I'm getting an offering price of about 112.5 and so YTM would be about 3.3%. Ignore the coupon - that's for click bait. Are these tax free?

3.3% for 6 years tax free insured is ok. I'm guessing the AA/A1 rating is the insurers rating and issuer is something more like BBB.

 

[aja8888]

aja - can you double check that CUSIP? You have too many characters. Maybe it's 613772PK1?

Based on what you indicate as YTW, these are clearly being offered at a premium, above 100. Working backwards, I'm getting an offering price of about 112.5 and so YTM would be about 3.3%. Ignore the coupon - that's for click bait. Are these tax free?

3.3% for 6 years tax free insured is ok. I'm guessing the AA/A1 rating is the insurers rating and issuer is something more like BBB.

nj, yes a mistake by me. The CUISP is 61372PKK1. Sorry! Yes, it'a a tax free muni and insured but I am not sure of the insurer's (AGM) rating.

 

[njhowie]

nj, yes a mistake by me. The CUISP is 61372PKK1. Sorry! Yes, it;a a tax free muni and insured but I am not sure of the insurer's rating.

Thanks, I see it now.

The AA/A1 is the insurers rating. Underlying/issuer is BAA2/BBB.

There are numerous other maturities being offered - see Page 2:
https://emma.msrb.org/P21594908-P21230379-P21653185.pdf

I've pulled up a few of these and it looks like they've already been sold to the dealers. Your 2028 issue:

 

[aja8888]

Thanks, I see it now.

The AA/A1 is the insurers rating. Underlying/issuer is BAA2/BBB.

There are numerous other maturities being offered - see Page 2:
https://emma.msrb.org/P21594908-P21230379-P21653185.pdf

I've pulled up a few of these and it looks like they've already been sold to the dealers. Your 2028 issue:

Yes, thanks.

Schwab has some and I was looking to buy today but may hold off until after this week. These MUD (Municipal Utility District) bonds are financing the real estate growth of roads and water utilities just north of me. Schwab's price was $112 and some change for the 2028 bond.

 

[njhowie]

Fed hikes by 0.75%, 10-year down to 2.725% at the moment. Market doesn't care what the Fed is doing.

 

[njhowie]

Got a nice 2 year for mom today.

130911XH8 Insured Maturity 6/1/2024 YTM 5.05%, Sink 6/1/2023 YTS 4.1%

 

[aja8888]

Got a nice 2 year for mom today.

130911XH8 Insured Maturity 6/1/2024 YTM 5.05%, Sink 6/1/2023 YTS 4.1%

Loos like it's federally taxable.

 

[njhowie]

Loos like it's federally taxable.

At mom's tax bracket, it's no concern.

 

[sengsational]

At mom's tax bracket, it's no concern.

I'm doing the same job for my mom. I've got a ladder and one's maturing 8/1, so I'll be shopping.

When I looked up 130911XH8, it said "Fidelity is not currently offering this security." I wonder how many good deals are not being offered by Fidelity.

For maturities around the 6/2024 mark, most of the ones they offer have SFP. The one that doesn't has YTS -19%!! But the best rate is 3.75% YTM, so getting 5.05% (or likely 4.1%, I guess) is a pretty good deal.

Did you put in a lowball order that got picked-up, or did you just pay the ask?

 

[njhowie]

I'm doing the same job for my mom. I've got a ladder and one's maturing 8/1, so I'll be shopping.

When I looked up 130911XH8, it said "Fidelity is not currently offering this security." I wonder how many good deals are not being offered by Fidelity.

For maturities around the 6/2024 mark, most of the ones they offer have SFP. The one that doesn't has YTS -19%!! But the best rate is 3.75% YTM, so getting 5.05% (or likely 4.1%, I guess) is a pretty good deal.

Did you put in a lowball order that got picked-up, or did you just pay the ask?

So, obviously at the time I purchased, the dealer was offering on Fidelity. I bought, and there were no other dealers offering, so that's why it says not currently offered by Fidelity. Also, sometimes dealers will leave their offers overnight or they will pull them before the close. My point is that what you see at this time may not be indicative of what is really available and will be reposted in the morning...generally sometime between the open at 8am, and around 9am. Also, if you look at the trade history on this one, it is extremely thinly traded.

When I saw this one, I just paid the ask, did not attempt to lowball because the yield was such that I figured if I didn't take it, soon enough someone else would. So not worth playing in this case, in my view.

As far as sinking fund, I don't pay too much attention to it. I will go and review the sinking fund schedule for ones that are a few years to maturity. If the yield to sink is low or even somewhat negative, I'll calculate the expected return based on the probability of mine coming up in the first sinking redemption. Earlier this week I did pick up some with sinking fund that if mine were redeemed on the first date, in about 6 months from now, my return would be a negative 10% (annualized). However, in the first year, only 2% of the outstanding bonds will be redeemed, so it's a very low likelihood that I will experience that YTW loss and if they get redeemed in year 2 or later, my yield works out significantly better.

I also picked up 346424Y40 for my own portfolio earlier today. I've built up a biggish position in the Forney, TX long-term zero coupon bonds. For this one, the call date is in one year. If called, I'll get 1.57% return for the one year hold. However, if not called, YTM is around 6.9% through 2041. I've built up this position in the Forney bonds because I began purchasing when they were undervalued...as I saw the financials and economy there strengthening, and then the ratings agencies upgraded a few months later confirming what I saw. Additionally, they are all insured. About half are taxable and the other half tax free. So, we'll see what happens. The first call date (for 346424U51) is coming up next month on 8/15, and they have not given notice, so it's looking good that they will not be calling. All the other Forney issues I hold have their first call dates on 8/15 in 2023 and 2024, with YTC of 1% to 3% and YTM of 5% to 7%.

 

[njhowie]

Also, you need to make a distinction between sinking fund schedule and call schedule.

With the sinking fund redemptions, there's simply the possibility that yours will be redeemed. Whereas with the call, generally all the bonds get called, and on the first call date. So, in my view, there's always a high likely hood of the call happening if then current interest rates are lower than the coupon on your bonds. In the case of sinking fund (where there isn't also a call schedule) - there is no chance that all the bonds are going to be redeemed early, it's simply going to be a certain number of the outstanding bonds at the first sink date, and annually thereafter through maturity. So like I mentioned in prior post, you can take the percentage being sunk annually and calculate the statistical expected return.

 

[jazz4cash]

I am trying to get a better understanding of yield to worst vs. yield to sink. I thought it was an either/or metric since they share a single column on Fidelity’s listings. I assumed it was the same as yield to call in most cases.

 

[njhowie]

I am trying to get a better understanding of yield to worst vs. yield to sink. I thought it was an either/or metric since they share a single column on Fidelity’s listings. I assumed it was the same as yield to call in most cases.

Yield to worst is going to be the lesser of yield to call, yield to sink, and yield to maturity.

When using Fidelity's site, unfortunately they do not always show yield to sink in the summary listings, so before purchasing you do need to look at the details screen and if there is anything under the sinking fund link.

 

[njhowie]

10-year at 2.669% and falling.

 

[COcheesehead]

Fed hikes by 0.75%, 10-year down to 2.725% at the moment. Market doesn't care what the Fed is doing.

The moment, at least for now, to make some returns other than interest in the muni market was about a month or so ago. There was a nice spike in yields and anyone in this market knows those moments are brief.

 

[njhowie]

The moment, at least for now, to make some returns other than interest in the muni market was about a month or so ago. There was a nice spike in yields and anyone in this market knows those moments are brief.

Indeed. That's why, when they come, unlike many other folks, I do not become afraid to go further out with maturities - I always pick up some things which are 10, 15 years, and more. Need to lock in those rates when they are available. Those longer term issues experience the greatest volatility and provide the opportunity to flip for a quick profit or hang on for the longer term higher yield.

There are still some good deals available. Some a little lower quality, but still strong issues which have been temporarily (in my view) discounted.

 

[sengsational]

Yield to worst is going to be the lesser of yield to call, yield to sink, and yield to maturity.

Thanks for your explanations and rationale. If it were me, I'd run the expected value calculations on the sinking value percentage, but I don't want to explain it to my mom, LOL!

I saw something while shopping on Fidelity to get notified if there are issues that get added that match a search. Is that something you do? Given your observation that it's time sensitive, I wonder if the timing of the alerts are ok, or if logging on is better.

 

[njhowie]

Thanks for your explanations and rationale. If it were me, I'd run the expected value calculations on the sinking value percentage, but I don't want to explain it to my mom, LOL!

I saw something while shopping on Fidelity to get notified if there are issues that get added that match a search. Is that something you do? Given your observation that it's time sensitive, I wonder if the timing of the alerts are ok, or if logging on is better.

Yes - the easy way to explain it to mom is ... what's the likelihood that yours will be called the first year? The next year? If the percentages are low, then it's worth the risk.

As far as the alerts, I don't do them. I do have a bunch of predefined searches which I click on and then sort by yield to maturity and maturity date back and forth and see what stands out. Alerts could work. Yes, it is time sensitive - but it's a matter of if you're watching or not. The alerts could do that watching for you if properly defined. I haven't played with it, but maybe I should.

 

[njhowie]

The first call date (for 346424U51) is coming up next month on 8/15, and they have not given notice, so it's looking good that they will not be calling.

Received call notice this morning for 8/31. Bummer. I suppose that is likely a harbinger of their intent on the others when they become callable in 2023 and 2024.

Oh well, more funds to redeploy.

 

[njhowie]

10-year treasury below 2.55% this morning.

 

[COcheesehead]

What a move. I was buying 8-10 year duration munis just 6-7 weeks ago in the mid 4% range.