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Municipal Bonds........
Posted on 2/21/10 at 1:31 am
Posted on 2/21/10 at 1:31 am
How are these bought/sold? Are they a worthwhile investment? Already have some money in the market, and I'm starting to get itchy with some I have socked in away in CDs.
3
Posted on 2/21/10 at 2:19 am to TJG210
just stay away from Harrisburg PA 
Posted on 2/21/10 at 2:25 am to Greenspan
Posted on 2/21/10 at 9:33 am to TJG210
Get mine through a broker.
One technique we use is to purchase only in $5k increments, thereby spreading the risk out.
We've also avoided California, Michigan and maybe a couple of others for a few years.
The tax free is nice, but to avoid state taxes the Muni has to be in your state (at least that's how it is in LA)
One technique we use is to purchase only in $5k increments, thereby spreading the risk out.
We've also avoided California, Michigan and maybe a couple of others for a few years.
The tax free is nice, but to avoid state taxes the Muni has to be in your state (at least that's how it is in LA)
Posted on 2/21/10 at 9:34 am to Fat Man
Posted on 2/21/10 at 11:04 am to TJG210
There are a variety of municipal bond funds as well, some designed for specific states. Those are very easy to buy. Nuveen has a shiteload of them (for one source).
Keep in mind if inflation does kick in that they will take somewhat of a beating so be ready to eject.
Keep in mind if inflation does kick in that they will take somewhat of a beating so be ready to eject.
Posted on 2/21/10 at 12:34 pm to Tigris
quote:
if inflation does kick in that they will take somewhat of a beating
I've countered w/ a bit TIPS.
And although the value of the bond may decline, the interest paid will remain ... I'm in at around 4.5 to 5.5% tax free, wh/ I believe means interest rates on taxable CDs would have to hit 7% or so.
Posted on 2/21/10 at 2:16 pm to Fat Man
Yeah, but you bought many of those when prices were down and your tax bracket may be significantly different than the OP. The individual muni's I own are definitely trading at a premium to face value, and the limited term tax exempt is at a premium to when I bought. The OP is taking risk in paying over the face value of most available desirable TE bonds/funds after the run up, when municipalities in many areas are facing severe operating shortfalls. He might be better sticking with his CD's. At current valuations on shorter term bonds I would be better buying a 7-yr 3.5% CD for safety and if rates increase redeem it earlier with penalty of 3-6 months interest and reinvest in higher yielding bonds or CD's. I don't believe the risk/reward profile of current TE bond choices is great for a fixed income investor as an entry point, better to wait if earning decent guaranteed interest rates elsewhere.
Then again, I hold fixed income to reduce the overall volatility of my portfolio and tend to stay on the shorter end, especially with such artificially low rates in place.
Per Bloomberg, the 7-yr AAA GO is trading with yield of 2.26%, which is 3.14% taxable at 28% fed bracket, why not get the 3.5% CD?
Bond yields
To the OP, I would spend some time and effort on this site to promote learning and keep from being screwed if you use a broker, there can be large markups on individual bonds that could take you years to recoup:
EMMA
Then again, I hold fixed income to reduce the overall volatility of my portfolio and tend to stay on the shorter end, especially with such artificially low rates in place.
Per Bloomberg, the 7-yr AAA GO is trading with yield of 2.26%, which is 3.14% taxable at 28% fed bracket, why not get the 3.5% CD?
Bond yields
To the OP, I would spend some time and effort on this site to promote learning and keep from being screwed if you use a broker, there can be large markups on individual bonds that could take you years to recoup:
EMMA
This post was edited on 2/21/10 at 2:17 pm
Posted on 2/21/10 at 2:30 pm to tirebiter
quote:
bought many of those when prices were down
this is true, but regardless of whether their value goes up or down, I still get the interest at a constant rate.
quote:
trading at a premium to face value
Yea, I've stopped buying .. but if the OP doesn't have any, he might:
quote:
hold fixed income to reduce the overall volatility of 'his' portfolio
quote:
7-yr AAA GO is trading with yield of 2.26%
I'd go w/ the higher yield Muni.
quote:
buying a 7-yr 3.5% CD
quote:
my portfolio and tend to stay on the shorter end
3.5% CD sounds good to me; 7 yr doesn't.
Posted on 2/22/10 at 9:18 am to Fat Man
quote:
3.5% CD sounds good to me; 7 yr doesn't.
The beauty of it is, especially if someone was choosing a bond fund, is you can break the CD and not lose principal after 3-6 months depending on the agreement, and reinvest at higher rates. Try to do that with a bond or bond fund and you will lose money, especially on intermediate to longer term bonds.
30-yr TIPS are auctioned today, will have to see what the rate ends up at, I am not buying any regardless.
Posted on 2/23/10 at 2:53 pm to tirebiter
Just curious, but does muni bond interest income factor in calculation of your AMT? I already have to pay AMT so thinking that, if it does, I get no benefit from buying muni's since it will only increase the amount I owe under AMT.
Posted on 2/23/10 at 4:36 pm to Weasel74
It depends. You can purchase TE bonds that are intended for true governmental purposes that should be free from AMT, but any that have private activity purposes may be subject to AMT. You really would have to research the underlying bond to ensure it fits your objective in that respect. Some mutual funds will hold only non-AMT muni's, but many hold some portion which fall into AMT status.
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