Muni Bond (and Muni Bond Fund) Discussion

[COcheesehead]

It had never occurred to me to look at Taxable munis but I can see some of their appeal now. In my state, I believe even taxable munis are exempt, so that makes them equitable to Agencies if I buy from my state.

Today (@ Fido New Issue) state of Nebraska Housing (AAA) is selling a 29-year (9-year call in 2032) 5.668% Taxable (closes 11:30AM today)

To get those 9-years without a call in corporates or agencies, I will have to dip well below AAA to get that kind of yield. They are also selling a Tax Exempt version for 4.65%, which is a better return for me if I were to purchase, but the Taxable is something I would have never looked for without this forum.

I buy taxable munis from time to time. The market is not as efficient as other bonds and you can find some gems. They are also known for no call or longer no call windows with decent yields.

 

[njhowie]

Having very good luck with the dealers this morning for both munis and secondary market CDs. Underbidding the ask by a fair amount and they're filling. I'm getting my duration. Had a good amount of maturities/redemptions this morning and need to redeploy the cash. Have another chunk coming on 8/15 as well.

 

[COcheesehead]

Got all my interest deposited this morning. August and February are my weakest months for interest. From here until Dec 15 is when I start to collect the big bucks.

 

[njhowie]

I did have one purchase today which I'm expecting to get reversed. I didn't get the call today, but we'll see...maybe I will get lucky and the dealer will be embarrassed to admit he made a mistake and grovel for it to be undone. With or without that, it was a really good day for buying as the 10-year yield going up strong applied price pressure on most everything.

 

[njhowie]

Very strange....

While running my secondary market CD screener, just after 4PM today, CDs begin coming in at the top of the list (highest yield) priced at 98.85. Maybe one or two at a time, maturities 6 months to a year, random YTM in the 6% to 11% range. I see one, I click as fast as I can. I don't get it, cancel to release the allocated funds, see another, jump at it...this goes on for maybe 10 minutes. I manage to snag two of them...at 98.85, 6 month and 9 month, YTM of 6.78% and 6.47%. Wacky.

...and to follow up from yesterday, no phone call to try to undo my purchase. Fingers crossed.

 

[COcheesehead]

Very strange....

While running my secondary market CD screener, just after 4PM today, CDs begin coming in at the top of the list (highest yield) priced at 98.85. Maybe one or two at a time, maturities 6 months to a year, random YTM in the 6% to 11% range. I see one, I click as fast as I can. I don't get it, cancel to release the allocated funds, see another, jump at it...this goes on for maybe 10 minutes. I manage to snag two of them...at 98.85, 6 month and 9 month, YTM of 6.78% and 6.47%. Wacky.

...and to follow up from yesterday, no phone call to try to undo my purchase. Fingers crossed.

Interesting….

 

[imbatman]

Two weird things (to me at least) in Fido lately with munis.

1) Is it common to get a higher rate AND discounted price on new issues?

I placed an order during open period for NB HSG 4.65% (63968MY37) and it ended up filling at $99.84 and now at 4.80%?? I am very pleased and knew the price sometimes fluctuated but didn't expect the coupon amount to ever change........

2) I placed a secondary order for 5 bonds (different - 574218T45) at a buy price of $94.90 at around 8:30AM and didn't look until this afternoon. Go out there now and despite my order still showing active/ open under Orders, it is not showing in the depth of book anymore as an open bid, and the seller has now lowered his sell price to $94.226! How did my active order not fill that? I had to cancel my "open" order and then just took it off the book directly instead of bidding and it filled instantly. Had this happen to me on Monday as well, exact same thing (different bond), seller lowered price below my buy bid but Fido didn't fill and I had to cancel my open and then grab off the sell book.

 

[njhowie]

2) I placed a secondary order for 5 bonds (different - 574218T45) at a buy price of $94.90 at around 8:30AM and didn't look until this afternoon. Go out there now and despite my order still showing active/ open under Orders, it is not showing in the depth of book anymore as an open bid, and the seller has now lowered his sell price to $94.226! How did my active order not fill that? I had to cancel my "open" order and then just took it off the book directly instead of bidding and it filled instantly. Had this happen to me on Monday as well, exact same thing (different bond), seller lowered price below my buy bid but Fido didn't fill and I had to cancel my open and then grab off the sell book.

That is strange. You might want to give the fixed income folks a call and ask how that could occur. Their direct number is 800-476-4589...you won't have to go through the main customer service folks.

 

[njhowie]

Received notification from Fidelity this morning...

A callable brokered CD I purchased as a new issue in July of last year is being called in a few weeks. It was callable monthly beginning October last year. It has a maturity date of Dec 2024.

What is strange here - the CD has a rate of 3.4%! Why are they calling now? No problem by me as I'll reinvest it in something over 5%.

CUSIP = 12527CEX6

 

[COcheesehead]

Received notification from Fidelity this morning...

A callable brokered CD I purchased as a new issue in July of last year is being called in a few weeks. It was callable monthly beginning October last year. It has a maturity date of Dec 2024.

What is strange here - the CD has a rate of 3.4%! Why are they calling now? No problem by me as I'll reinvest it in something over 5%.

CUSIP = 12527CEX6

Count that as a win.

 

[imbatman]

Wow that is nuts. Good for you

 

[pb4uski]

Sometimes the bond and brokered CD markets behave strangely. I recall an agency bond that I bought that was a new issue that was called a month later.

 

[njhowie]

2) I placed a secondary order for 5 bonds (different - 574218T45) at a buy price of $94.90 at around 8:30AM and didn't look until this afternoon. Go out there now and despite my order still showing active/ open under Orders, it is not showing in the depth of book anymore as an open bid, and the seller has now lowered his sell price to $94.226! How did my active order not fill that? I had to cancel my "open" order and then just took it off the book directly instead of bidding and it filled instantly. Had this happen to me on Monday as well, exact same thing (different bond), seller lowered price below my buy bid but Fido didn't fill and I had to cancel my open and then grab off the sell book.

I just experienced this with an agency bond.

Ask was 99.95, I placed a day order at 99.85 about an hour ago. Go back to check, and ask had moved down to 99.85, next lower bid is showing as best, my order was still open. Canceled and placed new order at the 99.85 ask.

So Fidelity has some kind of bug in their system. Wouldn't be the first time.

 

[njhowie]

Just an FYI - if you are eyeballing the 10 or 20 year agency bonds at Fidelity at ~6.12% for volume, consider the 15 year, which is at 6.281% for quantity 1 or more. It's got an October call date, but so does the 10-year.

You have to go look for it, because you can't get to it from the fixed income tab/table where it gives 10 and 20 year links.

https://fixedincome.fidelity.com/ftgw/fi/FIIndividualBondsSearch?cusip=3133EPQX6

 

[njhowie]

Here we go again...

In a previous post a few weeks ago I mentioned some of my Forney, TX zeroes being called on the 15th. Well, as periodically happens, Fidelity credited the funds, I immediately reinvested in new bonds, then overnight Fidelity reverses the call, gives me the bonds back, takes the cash back, and leaves my account in a negative cash balance situation.

I already have email sent to the bond trustee/administrator and have located their direct phone number for Bondholder Relations, so you can guess who's going to be on the line the moment they are there this morning.

If Fidelity gives me a hassle, I'm going to give them a taste of their own medicine this time, and tell them to go and cancel the bond purchases I made yesterday. See how it feels with the shoe on the other foot.


Update 7AM Eastern/6AM Central: Just got off the phone with US Bank, they are all prepared to pay it, but they have not received the funds. Found CFO for the issuer, email just sent to him. We'll see if he gets back to me before I begin getting harassed by Fidelity.

 

[njhowie]

Update 12:37PM Eastern/11:37 Central

Having not received reply from CFO, I call him, nice guy. Says he got my email earlier, they sent the money on the 14th, paying agent has it, doesn't know why there would be an issue.

Call US Bank back again, spoke with a different rep, he's looking in their system, doesn't understand why it hasn't been paid. Suggests sending email, gives me the urgent subject line to include, and gives me their email address. As I'm typing in the email address, GMail pops up with the address as I had sent mail to it in the past. I check my emails, and back in March, same thing, different issuer - failed to pay on the call date. So, I'm beginning to think that US Bank Corporate Trust Services group has some issues.

No harassment call from Fidelity yet, but I did request bids on about 30 of my bonds to reduce the negative balance. Most all of the bids came back were garbage. So I manually submitted them all for sale with my own ask. One sold already - dealer offered me 62.635 for it when I requested bid, mark-to-market is 64.787, and I sold it for 68.025 (and then 0.1 mark-down for commission). Assuming a couple more sell and I get the balance positive, I'll cancel the remaining sales. Of course, if the payment on the called bonds gets credited sooner, then I'll cancel them all.

So annoyed when this happens.

 

[imbatman]

Yikes what a headache, I would hope Fidelity wouldn't hassle you since you made an honest decision with the data they provided....on the other hand, I guess they are just hte middle man.

Great info on the bids/ manual sale spreads and success. Hope it all works out for you.

 

[njhowie]

Yikes what a headache, I would hope Fidelity wouldn't hassle you since you made an honest decision with the data they provided....on the other hand, I guess they are just hte middle man.

Great info on the bids/ manual sale spreads and success. Hope it all works out for you.

Thanks.

Fidelity could prevent the problem from happening by simply not crediting the account until they've received payment, regardless of when that is. Probably 99 times out of 100 there is not a problem and when an issuer says they are calling, and Fidelity has the info in their system, they credit optimistically assuming it will take place. Maybe they should put the funds on hold that haven't been received yet? Whatever, they should have a better way of dealing with this.

And yes - clearly manually doing the sale myself is better than being ripped off by the dealers bidding on them. Then again, there's more work involved and no guarantee they will sell. Half of the bids received were flagged by Fidelity as "Outlier", meaning well below mark-to-market.

 

[imbatman]

Yes, Fidelity shouldn't really make funds available until they actually ARE. But on the other hand, I normally do appreciate quick availability of funds from new transactions.

I am still newish to buying individual bonds so the low volume market on resale is a different world from stocks, but I was just thinking to myself this morning that if I had instead bought these bonds in a "cheap" MF (which has additional risks/benefits, acknowledged) at say a below average 0.30% expense ratio ($3,000 per year on $1M).....taking a dollar or two haircut on resale, I am still netting a pretty good expense savings every year.

 

[njhowie]

Received call notification this morning, muni CUSIP 777543RR2. Original maturity date is Dec 2025. Issuer is exercising the make-whole call provision. I'm guessing the applicable treasury rate plus their spread makes it worth it for them to do it now.

 

[njhowie]

Victory - just got my cash balance out of negative territory. Was able to sell a CD, July 2024 maturity, dealer gave me just 0.02 below mark-to-market. Still have bids requested on about 25 munis this morning. Will see if any come back with respectable offers.

 

[njhowie]

...but I was just thinking to myself this morning that if I had instead bought these bonds in a "cheap" MF (which has additional risks/benefits, acknowledged) at say a below average 0.30% expense ratio ($3,000 per year on $1M).....taking a dollar or two haircut on resale, I am still netting a pretty good expense savings every year.

Understand, I'm not looking to step on your views, just stating my own.

With that said, I believe that everything which follows the bolded words is irrelevant. We saw that over the past two years with many folks, both here and on BH screaming bloody murder about how this is not what "bonds" (i.e. bond funds) were supposed to do in their portfolio, they were going to sell off all of their "bond" holdings...after being down 10%, 25%, or more. It's my belief that this is exactly why folks are here on this thread and gravitate towards owning individual municipal bonds - because of the guarantee that you know your income stream and when you're getting your principal back the moment you hit the buy button. There are no unknowns at that point. It's that certainty, and that you will not lose money if you hold to maturity, that are the draw to owning individual municipal bonds...in my view.

 

[COcheesehead]

Individual bonds have a date specific IOU in the form of par. Bond funds have “I’ll pay you when I can…maybe” feature. LOL.

 

[MichaelB]

Individual bonds have a date specific IOU in the form of par. Bond funds have “I’ll pay you when I can…maybe” feature. LOL.

That’s not how bond funds work. There’s no maybe. I’m not taking sides on the “individual bond vs bond fund” discussion, but a bond fund is composed of individual bonds with identifiable maturities and coupons. A bond in a fund works exactly the same way as a bond held in one’s portfolio.

 

[COcheesehead]

That’s not how bond funds work. There’s no maybe. I’m not taking sides on the “individual bond vs bond fund” discussion, but a bond fund is composed of individual bonds with identifiable maturities and coupons. A bond in a fund works exactly the same way as a bond held in one’s portfolio.

Let us know how much you’ll get and when from your bond funds. Your response is so far from accurate.
A fund has expenses for management.
If an investor in a fund wants cash, they have to sell at wherever the market is at. Both the fund and the investor lose if the market is below original purchase price. With a ladder a maturing bond fills the withdrawal need.
A fund has no par, the original value to return to. A fund may never reach your original purchase NAV.
An individual investor would likely never buy 1% bonds, but a fund by charter has to and the reason why so many today yield below money market yields.