What is happening with HY Muni Bonds today? Tracking down 14%

[DogGone]

I was going to sell a big position of two High Yield Munis today (ORNYX and NHMAX) to build 2 years of cash and they dropped a few percent recently. I looked at an ETF (HYMB) and another just now to see what to expect today and it looks like they are down 14% today

Still sell today? I know the Fed is getting involved today but don't understand why munis are being hit so hard in one day.

 

[audreyh1]

You don’t understand why high-yield munis are dropping so much? It’s not unusual when there is a serious credit crunch and it looks like one has developed.

I don’t know what to advise you at this point. The funds you mentioned has only given back their YTD gain as of yesterday, but it does look like something nasty happened today with HYMB. Credit freeze? It’s above my pay grade.

 

[NW-Bound]

I was going to sell a big position of two High Yield Munis today (ORNYX and NHMAX) to build 2 years of cash and they dropped a few percent recently. I looked at an ETF (HYMB) and another just now to see what to expect today and it looks like they are down 14% today

14%? Not a knowledgeable bond investor, but I had to look.

ORNYX currently down -4.1% from its high (-2% today), with NHMAX about the same. HYMB is down -18.5% from its high (-14% just today).

All are high-yield muni funds. Why the difference? What's going on?

PS. Perhaps people are dumping the ETF, but the MFs will not show the effect until after market close.

The total bond ETF BND is down -2% for the day, and -5.8% from its top.

PPS. I have 3 bond ETFs. They are down roughly -2% today.

 

[MichaelB]

14%? Not a bond investor, but I had to look.

ORNYX currently down -4.1% from its high (-2% today), with NHMAX about the same. HYMB is down -18.5% from its high (-14% just today).

All are high-yield muni funds. Why the difference? What's going on?

PS. Perhaps people are dumping the ETF, but the MFs will not show the effect until after market close.

Sometime after the market close the ETF will show NAV along with market price. Then it will be clear if this is a panic sale or a real loss in asset value.

 

[SecondCor521]

One of the talking heads on CNBC claimed that banks were selling their muni bonds to raise cash to meet demand for cash from banking clients who are drawing down on their revolving lines either because (a) they need to, or (b) they anticipate needing to soon and don't want to get caught in a situation where the bank has reduced / closed / paused / whatever their credit availability and it's not there when they need it.

Not sure how much of that I believe, but logically it explains the data today.

 

[DogGone]

I think I’m going to raise 2 years cash and put my head in the sand for 3 months.

Not exactly the first FIRE summer I imagined.

 

[Fermion]

I am with you there. If I were not married I would just put 30 books on my Kindle, grab a case of canned tuna, some pork rinds and a couple boxes of Totino's party pizza and hide out on our mountain property in our RV for two months while the whole world goes to hell. I could emerge into summer with tweeting birds and see what all the fuss was about.

 

[Montecfo]

In my opinion HY bonds are part of the equity allocation, not the bond allocation.

There was a lot of indiscriminate selling today and munis can be both thinly traded and the risk profile can vary dramatically. Presumably these will recover over time since rates are down not up, unless there are some issue specific problems.

 

[Retireby45ish]

I saw something similar in HYD which is high yield mini etf. Down 15% today out of the blue. Before that it was barely moving.

Hopefully just a short term fear thing as I own that.

I’m the dec2018 mini blip it saw quietly so I viewed it as safe. Guess today changed that and some other assumptions.

Yes I read some articles that people are dumping them in case of a cash crunch.

My question is, if we bounce back in a few months do these rebound if no one defaults on the bonds??

 

[NW-Bound]

Besides HYMB (-16.76%), HYD (-13.27%), I also saw SHYD (-11.38%), and MLN (-7.21%).

Even Vanguard VTEB is down -5.85%, and the big BND is down -5.44%.

BND is an ETF which usually tracks VBTIX which is a MF, but today BND crashed. I guess it is a liquidity problem when a lot of people cashed out, and the underlying bonds found no buyers.

But why does VBTIX not reflect that? I don't know how the accounting works between them.

 

[DogGone]

The almost good news is my funds were only down 5% today... but the orders submitted at 2:30 EST were never executed.

I’m unclear if I have to resubmit them since they were only good for the day... didn’t even think this could happen.

 

[audreyh1]

I am with you there. If I were not married I would just put 30 books on my Kindle, grab a case of canned tuna, some pork rinds and a couple boxes of Totino's party pizza and hide out on our mountain property in our RV for two months while the whole world goes to hell. I could emerge into summer with tweeting birds and see what all the fuss was about.

Sounds like pretty good isolation!

 

[COcheesehead]

All bonds are down. More so for lower quality, but not nearly as bad as equities.

 

[MRG]

All bonds are down. More so for lower quality, but not nearly as bad as equities.

+1

All the bond indexes I watch are down except TLT and it's only a little green. Even ISTB, short term bond, is down 1.56%? I apparently don't understand anything about what is happening.

OP I accidentally have a couple years in CDs. They don't pay much but they don't move. I'm probably going to continue this error.

 

[audreyh1]

All bonds are down. More so for lower quality, but not nearly as bad as equities.

People having to sell their best stuff to cover - ouch!

 

[audreyh1]

The almost good news is my funds were only down 5% today... but the orders submitted at 2:30 EST were never executed.

I’m unclear if I have to resubmit them since they were only good for the day... didn’t even think this could happen.

For funds - they would have been executed after market close. Are you sure they weren't eventually executed this evening? Sometimes it's hours after market close before I get a mutual fund trade notification.

 

[socca]

Here's an article on Thursday's Muni Sell-Off.

At the height of the 2008 financial crisis, the yield on Vanguard's Municipal Money Market fund spiked over 5% - a bizarre situation for a money market fund. If that happens this time around, you'll know that a (possible) public health crisis has morphed into another financial crisis. My Vanguard Muni funds weathered the 2008 financial crisis quite well. I'll definitely be keeping an eye on them this time around!

 

[MichaelB]

The ETF page for HYMB shows the NAV is $56.53, while the closing market price yesterday was $48.49. This reminds me of the ‘09 selloff, when people were dumping munis and there were some amazing bargains. https://www.ssga.com/us/en/individu...g-barclays-high-yield-municipal-bond-etf-hymb

 

[audreyh1]

The ETF page for HYMB shows the NAV is $56.53, while the closing market price yesterday was $48.49. This reminds me of the ‘09 selloff, when people were dumping munis and there were some amazing bargains. https://www.ssga.com/us/en/individu...g-barclays-high-yield-municipal-bond-etf-hymb

Wow, that’s amazing! I knew there could be discrepancies with ETF prices and the underlying NAV, but that is huge!

 

[audreyh1]

Here's an article on Thursday's Muni Sell-Off.

At the height of the 2008 financial crisis, the yield on Vanguard's Municipal Money Market fund spiked over 5% - a bizarre situation for a money market fund. If that happens this time around, you'll know that a (possible) public health crisis has morphed into another financial crisis. My Vanguard Muni funds weathered the 2008 financial crisis quite well. I'll definitely be keeping an eye on them this time around!

Definitely craziness in the credit markets. It’s probably primarily folks being forced to cover riskier bets gone bad.

Waves of panicked selling are racing through the $3.8 trillion [muni] market, causing prices of even the safest securities to tumble and driving up 30-year yields by an unprecedented 51 basis points Thursday. The amount of securities being put out for bid by investment managers has surged as they rush to raise cash. And municipal junk bonds -- like those backed by airlines or state tobacco settlements -- are in the midst of the biggest rout in more than two decades.

“I have never seen cuts like this,” said Matt Dalton, chief executive officer of Belle Haven Investments, refering to the swift drop in prices.

The sell-off marks a dramatic about face for the municipal-bond market, where prices rose steadily until last week as the securities acted as a refuge from the stock-market’s slide. Yet even as investors flocked into Treasuries Thursday, state and local debt yields surged by the most on record, as those on 30-year securities soared to 2.32% from as little as 1.38% Monday, according to Bloomberg’s benchmark indexes.

The article goes on to talk about people just getting out, but in my experience, sudden asset mispricing is usually caused by leverage (e.g. margin) being unwound.

 

[Montecfo]

A lot of folks trying to go to cash or get into Treasury securities, fear driven. Just a bit surprising that hit munis, but it just validates the fact that in strong selloffs, there is indiscriminate selling and virtually all asset classes get hit. Even "safe haven's".

 

[MichaelB]

It’s both leverage and fear. This is when we see some ETFs don’t work well because there isn’t enough liquidity and the assets don’t have a deep enough market. It’s a good opportunity for someone with some cash and who can tolerate a bit of risk and volatility.

I bought individual bonds and some muni CEFs back in ‘09, and the bonds have all matured over the last 3 years. A peek this morning showed some bond prices came down sharply yesterday, but yields are still far lower than ‘09.

We’ll see if the indiscriminate selling continues today.

 

[audreyh1]

What’s funny is that yesterday, the worst market drop and highest VIX this year, even treasuries dropped a little. Of course they were at ridiculous high levels on Monday, so a pullback seemed healthy. But yesterday it seemed like even treasuries were being hurt a little due to forced selling. Unwind from bad positions can be very messy and cause crazy short-term market behavior.

Edited to add: I see that the 10 year treasury yield is continuing to rise to the levels of March 3 after the Fed emergency rate cut.

 

[audreyh1]

It’s both leverage and fear. This is when we see some ETFs don’t work well because there isn’t enough liquidity and the assets don’t have a deep enough market. It’s a good opportunity for someone with some cash and who can tolerate a bit of risk and volatility.

I bought individual bonds and some muni CEFs back in ‘09, and the bonds have all matured over the last 3 years. A peek this morning showed some bond prices came down sharply yesterday, but yields are still far lower than ‘09.

We’ll see if the indiscriminate selling continues today.

Indiscriminate buying at the moment - ha ha.

That’s one thing that always made me a little nervous about ETFs, although I imagine the broad index ETFs didn’t show nearly as much of a discrepancy against underlying NAV? Or did they also have problems yesterday?

 

[jazz4cash]

There was also some mention of PE (e.g. Carlyle Group) directing their subsidiaries to drawn down completely their credit lines (i.e. hoard cash) creating additional pressure on banks to raise funds.