Muni Bond (and Muni Bond Fund) Discussion

[njhowie]

Interesting. Thanks for posting something I never imagined could happen. I wonder how short they were and how you were picked to get bought out. How many bonds were listed as being available when you placed your order?

It was just the 5 bonds.

The dealer wasn't looking to be short, it just happened because he posted a bond for sale which he didn't have in his inventory available for sale - it was apparently a mistake. After I bought it, and he didn't have it, then he was short. It wasn't a matter of me being picked - the trade shouldn't have happened - if I didn't get back in touch with Fidelity, or agree to take the dealer's offer to buy them back, then they would have canceled the trade. Again, not really sure why the dealer was being generous in buying them back from me instead of just telling Fidelity to cancel it as normally happens.

 

[njhowie]

Just received another bond call for August 1. That gives me 3. Coincidentally, all of these calls are for zero coupons. Original maturity dates were August 1 2027, 2034, and 2037.

I'm good with these calls as my YTM on all of them is much lower than what I can easily get in the market right now.

 

[COcheesehead]

I haven’t had a muni called in a long time.

 

[Mr._Graybeard]

Interesting, zeroes being called, especially with maturities in the 2030s. It seems counterintuitive for the borrower. I wonder what events might have triggered those decisions, like conclusion of a capital project or improved credit rating. Likely the motivation is different in each case.

 

[njhowie]

Interesting, zeroes being called, especially with maturities in the 2030s. It seems counterintuitive for the borrower. I wonder what events might have triggered those decisions, like conclusion of a capital project or improved credit rating. Likely the motivation is different in each case.

My thoughts exactly.

I have a ton of Forney, TX insured zeroes with maturities out to 2053 and they have annual call dates on Aug 15. Almost all are YTM over 6% with a few over 7%. Last year a couple of them called on their first call date. Haven't heard anything on the ones that can call this year, but hoping they don't call. The final set of bonds can call beginning Aug 15 next year. Forney's credit rating was upgraded a couple years ago (Amazon moved in and brought economic stimulus) - these were all issued 2012-2014, so the first call dates are 10 years after issuance. We'll see if I get notice in the next few weeks.

 

[REWahoo]

I have a ton of Forney, TX insured zeroes...

I once dated a girl from Forney named Kate.

 

[MichaelB]

I once dated a girl from Forney named Kate.

Great first line for a limerick

 

[njhowie]

Trying to get a little duration. If I can't get duration, I'm just taking secondary market CDs. Picked up a couple agency bonds out of curiosity over past few days. 10-year treasury broke through 4.0% today, so things should get interesting.

Picked up 5-year callable CD this morning for YTM of 5.46%, but coupon is 5.0%, so it shouldn't be called as soon as those new issues with coupon at the current ~5.4%.

Not feeling too much love with what's available for the munis...put some bids in over the past few days, but dealers aren't budging. That will likely/hopefully change with this 4.0% on the 10-year.

 

[COcheesehead]

Haven’t done much in munis other than just staying with my ladder strategy in my taxable account. In deferred accounts I have been having some fun flipping lower investment grade corporates for a few hundred bucks here and there.

 

[njhowie]

Finally found a muni dealer willing to play ball.

Bought more Forney insured zeros - 8/15/2043 maturity, callable 8/15/2024 YTM 7.39% YTC 6.69%. I'll take those yields if they want to call or not.

 

[53anddone]

I must admit I had never tried offering less than the ask on individual bonds (maybe I'm an idiot) but managed to actually get one hit today on a very short term (12/23) issue. I was delighted!

I still think the bond market needs to catch up to the treasuries - all my calculators show them to be not as attractive as a T Bill - at least for 3 years or less. Then again my state (VT) is more thinly traded and rates don't seem to be as attractive as other states.

 

[nelsonowe]

Anybody buying long new-issue housing bonds?

Currently, IL and CT new issues are available now. Yields at 4.5-4.75% are as good or better than anything in the secondary market for the equivalent credit and duration. If you live in a state with an income tax (I do - CT) and can get one from your state the return is that much better (assuming you have other taxable income and are buying in a taxable account, of course!)

First dated calls on these are nine years out - 2032. However, the Fidelity bond desk tells me housing bonds are often redeemed even earlier if mortgages are paid off sooner than expected (average around 7 years). Still, it seems like you are getting paid a decent premium for not knowing exactly when you'll get paid back.

Any thoughts pro or con?

 

[njhowie]

Anybody buying long new-issue housing bonds?

Currently, IL and CT new issues are available now. Yields at 4.5-4.75% are as good or better than anything in the secondary market for the equivalent credit and duration. If you live in a state with an income tax (I do - CT) and can get one from your state the return is that much better (assuming you have other taxable income and are buying in a taxable account, of course!)

First dated calls on these are nine years out - 2032. However, the Fidelity bond desk tells me housing bonds are often redeemed even earlier if mortgages are paid off sooner than expected (average around 7 years). Still, it seems like you are getting paid a decent premium for not knowing exactly when you'll get paid back.

Any thoughts pro or con?

The Fidelity bond desk gave you good information - it's why I've generally stayed away from housing bonds. Unlike other munis where you have call dates that are well known at time of issue, housing bonds can generally be called at any time the issuer likes. When we had interest rates falling for so long, this was a big problem - because most were trading at a premium to par. If the issuer popped up one day and decided to call, that would cause an immediate loss to all the bondholders who paid above 100/bond.

So, a general rule of thumb when purchasing housing bonds - pay 100 or less. If you do pay above 100, mentally accept the fact that the bonds could be called tomorrow and you may suffer a loss as a result.

 

[nelsonowe]

True. I have only bought at par (new issue) or modestly below. These days, I don't see much in the muni world priced above par. The bigger problem is deep discount/low coupon which results a a big portion of the yield being taxable.

 

[nelsonowe]

And taxable at ordinary income rates due to the de minimus rule.

 

[njhowie]

I've had extremely good success lately with secondary market CD purchases bidding 0.1 below the offer, which covers Fidelity's markup.

 

[njhowie]

My Forney zeroes which are eligible to be called this year just gave their 30 day notice. Bummer. More money to reinvest. We'll see what's available in 4 weeks.

https://emma.msrb.org/P11684625-P11296178-P11726479.pdf

 

[imbatman]

Fido New Issue Excess Inventory added back today = 45505TJ36 (Indiana Housing, AAA, TE) 4.6% 30-Year (callable 07/01/2032, 9 years)

 

[nelsonowe]

Speaking of housing bonds, does anybody have insight or, better yet, a good data source on how often housing bonds are redeemed/called earlier than the official first call (usually 2032-33 on new issues these days), due to early mortgage payoffs or lack of demand or whatever internal mechanisms the housing authority has going on.

A Fidelity bond desk guy told me the average length to full redemption of housing bonds is about 7 years. He also said he considers the bonds to be essentially always callable, because the early redemption language in the offerings is broad enough so that if they want to call, they will.

 

[imbatman]

New Fido issues just dropped for Maryland Montgomery County Housing (A2)....a whole series but I got in on Jan 2060 4.95% (callable Jan 2032 and as others have indicated could be early for housing), DC0100CM7....quick turnaround as just dropped this afternoon and close 11:30AM on Monday

 

[jazz4cash]

New Fido issues just dropped for Maryland Montgomery County Housing (A2)....a whole series but I got in on Jan 2060 4.95% (callable Jan 2032 and as others have indicated could be early for housing), DC0100CM7....quick turnaround as just dropped this afternoon and close 11:30AM on Monday

Nice catch! I’ve started ignoring the announcements for these lately because most of them were way over par which didn’t feel right to me for new issue. The short window is typical. I’m not looking to go more than ~15yrs and I am skeptical of the county housing agencies but you’ve given me some homework. I own one now but I like it because it identified a specific property which was a mix of subsidized and market rate residences.

 

[COcheesehead]

Haven’t really researched much on tax free munis for awhile. I am fully invested now in my taxable account and won’t have anything maturing until Nov/Dec of this year.

 

[imbatman]

Unfortunately my state/local is about 8% so the value there is real for me and deals have been better in munis the last few weeks (accounting for my cumulative tax rate) than agencies/ corporates.

 

[COcheesehead]

Unfortunately my state/local is about 8% so the value there is real for me and deals have been better in munis the last few weeks (accounting for my cumulative tax rate) than agencies/ corporates.

Munis are very situational I have found. They make up about 70% of all the bonds I own, but the times to get great deals on them are short. If they look good to you now, I wouldn’t hesitate to act.

 

[jazz4cash]

I looked through that MD Housing bond briefly. I like how many tiers of maturities they offer and the rates are good but I’m gonna pass. It’s just too vague wrt the use and security for the funds. I could convince myself to nibble here but I’m hoping to get some GO’s even if rates are lower.