Muni Bond (and Muni Bond Fund) Discussion

[imbatman]

Welcome @Orange, in general this depends on your risk tolerance (ex. I only buy A2/A rated or higher), your personal perspectives, your view of coupon/ duration trade-offs, and your view on callable/ extraordinary redemption trade-offs for higher yield.....also your perspectives on particular companies and industries (ex. I have pretty much avoided Meta bonds because I am not sure I believe they will be here in 30 years, I also try to avoid most for-profit schools, senior living, hospitals, and places I think are prone to catastrophic annihilation....ex. not many New Orleans or Miami things for me). I might make an exception to those rules if the bonds are insured. You are lucky you don't have state tax, so that definitely gives you a level playing field.

Also a little depends on your platform. IMO hard to beat Fido for buying new issue bonds as they always have a lot available at no fees. In general, I am normally going for the highest yield and don't really care about the duration, as long as they are paying me for it (I am here for the TE income and believe we are in a time of high interest rates).

I bought some new Housing bonds this week, but I don't see anything in the new issues that I would be in a rush to buy right now....but probably 414521EX8 would be my new issue choice if I had to buy. Not callable until 2031, no ER, AA / insured, and 4.65% for 23-years is not bad. For secondary, I would probably grab 48504NBE8....A2, not callable until 2029, and a decent 4.95% YTW (5% face) for 26-years.

Lastly, don't let the tax collector force you in a corner. If you are in a low enough federal bracket (and you said no state), you might do better with corporate bonds. Right now you can buy 63305M4T5 National Bank of Canada AA2 30-yr with 6.2% YTW and no call until 2027.....so as long as your not above the 22% tax bracket, you would do better with this taxable than the new issue item I indicated.

...just a regular dude with no background in financial services....so hope that helps FWIW........

 

[YellowSubmarine]

There are several "sweet spots" to consider. Here's one sweet spot with a decent table for taxable equivalents. Ratings, maturity date, call features and bond purpose, e.g. revenue, GO. are also considerations.

 

[Orange]

Welcome @Orange, in general this depends on your risk tolerance (ex. I only buy A2/A rated or higher), your personal perspectives, your view of coupon/ duration trade-offs, and your view on callable/ extraordinary redemption trade-offs for higher yield.....also your perspectives on particular companies and industries (ex. I have pretty much avoided Meta bonds because I am not sure I believe they will be here in 30 years, I also try to avoid most for-profit schools, senior living, hospitals, and places I think are prone to catastrophic annihilation....ex. not many New Orleans or Miami things for me). I might make an exception to those rules if the bonds are insured. You are lucky you don't have state tax, so that definitely gives you a level playing field.

Also a little depends on your platform. IMO hard to beat Fido for buying new issue bonds as they always have a lot available at no fees. In general, I am normally going for the highest yield and don't really care about the duration, as long as they are paying me for it (I am here for the TE income and believe we are in a time of high interest rates).

I bought some new Housing bonds this week, but I don't see anything in the new issues that I would be in a rush to buy right now....but probably 414521EX8 would be my new issue choice if I had to buy. Not callable until 2031, no ER, AA / insured, and 4.65% for 23-years is not bad. For secondary, I would probably grab 48504NBE8....A2, not callable until 2029, and a decent 4.95% YTW (5% face) for 26-years.

Lastly, don't let the tax collector force you in a corner. If you are in a low enough federal bracket (and you said no state), you might do better with corporate bonds. Right now you can buy 63305M4T5 National Bank of Canada AA2 30-yr with 6.2% YTW and no call until 2027.....so as long as your not above the 22% tax bracket, you would do better with this taxable than the new issue item I indicated.

...just a regular dude with no background in financial services....so hope that helps FWIW........

Wow, Thanks for hitting so many bases and for the specific recs. I am on Fidelity and as far as my risk tolerance, am willing to go a little further down investment grade. I do have some corp bond and appreciate the recs there also. Social Security income and upcoming RMD’s from retirement accounts, IRMAA etc have caught me a bit by surprise tax wise (shame on me) and I’m working towards reducing taxable income. Thanks again.

 

[imbatman]

Makes sense, don't forget also to consider Muni TE CEFs (different thread HERE)....you have to look at the discount/ premium and how much of their distribution is TE, but (similar to a MF) there is no guarantee your principle will be returned, unlike buying actual investment grade bonds yourself, so pay attention to the portfolio credit quality......but picking up the same 4-6% TE yield (on a monthly basis, even better!) with a 5-10% discount on the principle value, is pretty great if you time it right.

 

[jazz4cash]

Muni rookie here. I'm not trying to add to a ladder but would just like to deploy some cash towards tax exempt income. No state taxes. Are there sweet spots in duration, type, rating or location right now to factor in my search. Thanks

Not sure what you mean by 'no state taxes'. Do you live in a state with no state income tax? As for sweet spots, have you looked at a fixed income yield curve? I use Fidelity bond tools and I think they are decent. How are you searching? Muni maturities tend to be very far out, like >10 yrs. I haven't been looking lately but rates were getting better 6 months or so ago.
Edit: If I lived in a low/no state income tax state, it would be tough for me to find much worth buying. My home state bonds have lousy coupons generally but still a good boost for taxable equivalent yield.

 

[COcheesehead]

Bonds are probably the most efficiently priced investment outside a money market. So a single sweet spot depends on your individual taxation, your time horizon and your goals.

 

[Orange]

Texas no state income tax. Marginal Tax rate 22% pushing against 24% once RMDs start in several years. I was blissfully at 12% just a few years ago before SS income started.

I want to replace some taxable income from FDRXX earning 3.45%, with some individual muni bonds, $10k ish positions. Yellow Submarine's post helpful to see equivalents. My preference would be shorter duration but not opposed adding some longer duration if attractive.

I'm looking at existing bonds on the yield tab on Fidelity's Fixed Income page not at new issues and would be grateful to hear tips suggestions on search criteria from some of the gurus here.

My current bond positions include THOPX MINT, PIMIX, CEFs (the usual Pimcos and some muni Nuveens). Also some individual Corp and Agency bonds bought a couple of years ago. Thanks for the info so far and appreciate more insight or if willing share what you're finding attractive given your own goals.

 

[jazz4cash]

I think it will be tough to beat 3.45 without going fairly long but the 3.45 is not locked in. Unless you stumble on some anomoly I'd start laddering. Have you looked at depth of book on Fido? Sometimes it helps find issues but the good stuff is often thinly traded so you might need to consider tiny positions

 

[COcheesehead]

Texas no state income tax. Marginal Tax rate 22% pushing against 24% once RMDs start in several years. I was blissfully at 12% just a few years ago before SS income started.

I want to replace some taxable income from FDRXX earning 3.45%, with some individual muni bonds, $10k ish positions. Yellow Submarine's post helpful to see equivalents. My preference would be shorter duration but not opposed adding some longer duration if attractive.

I'm looking at existing bonds on the yield tab on Fidelity's Fixed Income page not at new issues and would be grateful to hear tips suggestions on search criteria from some of the gurus here.

My current bond positions include THOPX MINT, PIMIX, CEFs (the usual Pimcos and some muni Nuveens). Also some individual Corp and Agency bonds bought a couple of years ago. Thanks for the info so far and appreciate more insight or if willing share what you're finding attractive given your own goals.

Pick your duration, sort by YTW and see what you get. Lower coupons will give you less cash flow, but make up for it with capital gains - which might be taxable. So be careful there. Higher coupons may require a premium to purchase. Just depends what your goals are. Without a state income tax, muni’s are a bit less attractive. My entire ladder is made up of my state specific bonds so I get double tax free.
If you want to take on a little more call risk, sort by YTM. I go back and forth. I have rarely had muni bonds called.

 

[Orange]

I think it will be tough to beat 3.45 without going fairly long but the 3.45 is not locked in. Unless you stumble on some anomoly I'd start laddering. Have you looked at depth of book on Fido? ...

Thanks for the reminder to check depth of book.

Pick your duration, sort by YTW and see what you get. Lower coupons will give you less cash flow, but make up for it with capital gains - which might be taxable...
If you want to take on a little more call risk, sort by YTM. I go back and forth. I have rarely had muni bonds called.

Appreciate the search info and reminder I need to brush up on Cap gains (de minimis?) rules.

From the responses so far, may not be the best time for individual municipals in my situation but lots of good info. Cheers

 

[imbatman]

Just don't pay a premium on anything that is subject to ER, not worth the gamble. I have found the secondary market really dried up in the last week or so, but still some decent new issues if you aren't fearful of duration (ex. some new NY HSG 2056 TE AA2 munis, subject to ER, at 4.95%)

 

[COcheesehead]

Just don't pay a premium on anything that is subject to ER, not worth the gamble. I have found the secondary market really dried up in the last week or so, but still some decent new issues if you aren't fearful of duration (ex. some new NY HSG 2056 TE AA2 munis, subject to ER, at 4.95%)

If market based rates continue to rise, deals will show up from time to time.
You can pay a premium, if you use yield to worst as your guide. That removes the call risk.

 

[imbatman]

Are we talking the same thing? I thought those with ER (where I never pay a premium over $100) were ER called (different from the "regular call") based on unused or repaid loans from that loan pool and not necessarily discretionary calls..........I have definitely (when I got started) paid $104+ to get a good yield only to have the ER provision refund the bond at $100 and before I got hardly any value out of the premium and ended up with a bigger loss

 

[COcheesehead]

Are we talking the same thing? I thought those with ER (where I never pay a premium over $100) were ER called (different from the "regular call") based on unused or repaid loans from that loan pool and not necessarily discretionary calls..........I have definitely (when I got started) paid $104+ to get a good yield only to have the ER provision refund the bond at $100 and before I got hardly any value out of the premium and ended up with a bigger loss

The YTW would reflect your return though, no? So use that to make your judgement. You can also add call protection to your search criteria and that reduces your risk of making a bad decision.

 

[imbatman]

No if you buy in secondary and pay a premium, the YTW does not (actually cannot because being ER is dateless and always unknown) factor if your bond is extraordinary redeemed (YTW does factor in the official call date though).....but yes, you can search for those without ER and those with explicit call protection as I have separate searches established for each on Fido

 

[COcheesehead]

No if you buy in secondary and pay a premium, the YTW does not (actually cannot because being ER is dateless and always unknown) factor if your bond is extraordinary redeemed (YTW does factor in the official call date though).....but yes, you can search for those without ER and those with explicit call protection as I have separate searches established for each on Fido

Why I use call protection in my search. I have never had an ER since I started buying munis going back to 2008.

 

[sengsational]

What's an ER?

 

[COcheesehead]

What's an ER?

Extraordinary redemption

 

[sengsational]

Why I use call protection in my search. I have never had an ER since I started buying munis going back to 2008.

Is that because you avoided buying issues that allowed extraordinary redemption, or it was possible with bonds you bought, but rare enough that you never were hoodwinked by the practice? And had you paid above face value for any of them, exposing yourself to the possible loss of the premium?

 

[COcheesehead]

Is that because you avoided buying issues that allowed extraordinary redemption, or it was possible with bonds you bought, but rare enough that you never were hoodwinked by the practice? And had you paid above face value for any of them, exposing yourself to the possible loss of the premium?

I buy my muni bonds strictly for income and I want that income to last so I try and buy bonds with call protection, moderate term or as long as possible. There’s a whole category of bonds that are susceptible to ER and while I may have had those in the past, I don’t have any now. I probably have owned over 400 muni bonds in my lifetime. The number that have been called is less than 10.

 

[imbatman]

Well looks like we are stuck with this new view now.....and this morning they have removed the Municipal category from the New Issue table completely so now we are stuck with going to the old Muni table and opening each offering one at a time to see the rates.....no more sorting by rate for all the new issues - a real P-I-A.

 

[YellowSubmarine]

Well looks like we are stuck with this new view now.....and this morning they have removed the Municipal category from the New Issue table completely so now we are stuck with going to the old Muni table and opening each offering one at a time to see the rates.....no more sorting by rate for all the new issues - a real P-I-A.

You must be referring to Fidelity's latest change on the bond page and 'saved searches'. Too large, hard to focus and eyeball the picture.

 

[SteveTX]

They've changed the Analysis tool as well. So far it'd a LOT less useful. Maybe I'll discover more about its functions over time.

 

[COcheesehead]

They've changed the Analysis tool as well. So far it'd a LOT less useful. Maybe I'll discover more about its functions over time.

Are you talking about the fixed income dashboard? Mine appears the same.

 

[Spock]

Well looks like we are stuck with this new view now.....and this morning they have removed the Municipal category from the New Issue table completely so now we are stuck with going to the old Muni table and opening each offering one at a time to see the rates.....no more sorting by rate for all the new issues - a real P-I-A.

I spent way too much time looking for bonds before the Fidelity lobotomy. It's bad enough I'm exploring opening an account at Schwab to kick tires over there... but I hear Schwab isn't that great with bonds either. However with the major function degradation at Fidelity, Schwab might now be easier. Fodder for a different thread.