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Posted by
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Thoughts on Municipal Bond funds...
Posted by Chicken on 11/25/08 at 12:58 pm00
It was suggested to me to consider investing in them because they are tax-exempt.
I have some cash parked in a money market making under 2.7%. Looking for something better, with low risk and is liquid.
Thoughts on Municipal Bond funds right now?
I have some cash parked in a money market making under 2.7%. Looking for something better, with low risk and is liquid.
Thoughts on Municipal Bond funds right now?
This post was edited on 11/27 at 9:20 pm
re: Thoughts on Municipal Bond funds...Posted by Colonel Hapablap on 11/25/08 at 1:11 pm to Chicken
probably not bad for the next month or so.
Places like California and Alabama have some serious funding issues, so you might want to be weary of munis in those areas. If the entity has a solid tax base, like Harris County or Jefferson Parish, there's little to no chance they'll default on their highly rated debt.
BUT, why would you want to take on muni debt, when you can get some Goldman Sachs debt backed by the FDIC.
re: Thoughts on Municipal Bond funds...Posted by Cold Cous Cous on 11/25/08 at 3:57 pm to Cash
I'd like to hear Poodlebrain's thoughts
quote:
I was just pointing out that there are actually safer investments than muni bonds.
Of course there are. There are safer investments than money market funds also, but people invest in them.
If you are in a high tax bracket, which we all know Chicken is due too the cash register that is td.com, muni funds can make a lot of sense. Even though they are not "risk-free."
quote:
Thoughts on Munipal Bond funds...
Triple A rated only. Buy in small increments so if any one Muni goes bad it doesn't hurt.
Right now we're buying AAA w/ 6% yield tax free at 80 cents on the dollar. I'm guessing this broker's firm is buying them off hedge funds that have to liquidate. (My other broker is still quoting at 99cents on the dollar).
This post was edited on 11/25 at 6:24 pm
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You focused on the wrong part of my comment. My point was that a former ibank can issue risk free debt at rock bottom rates (to make a profit, no less), while governmental entities trying to provide services to the public have to pay demonstratively more to borrow funds. There's something messed up about that, and its not really a reflection on the investment qualities of either.
Take a look at the muni closed-end funds. They are still trading at big discounts to NAV, although not nearly as severely as when I recommended NMO on here back in October. It's currently trading at a 20% discount.
In Jan of this year Forbes ran the following article on MUNIs. Note that the writer of the article is from Lehman. Personally, I would assume that he was talking his book. I would also keep in mind that, last I read, some 27 states have current and future budget shortfalls. All forms of revenue collection for states/municipalities going forward will be constricted. It might be a good idea to do some homework on specific MUNIs prior to taking the plunge. MUNI funds = pig in a poke. How can one perform due diligence on opaque funds? All markets are now volitile, which offers both opportunity and risk. The sand states, Fl, Cal, Nv, Az, are in trouble. These states have depended on tourisim and homebuilding for a large part of their tax revenues. That model is slowing and who knows when/if it will resume. Many other states/municipalities, like Michigan, will also face revenue shortfalls if their manufacturing base declines.
'Over half of municipal bonds are insured by one of the large municipal bond insurers such as MBIA (nyse: MBE - news - people ), Ambac (nyse: ABK - news - people ), FIGIC and SCA. These entities are caught up in the collateralized mortgage obligation and collateralized debt obligation meltdowns because they also insured such debt instruments.
Ambac's credit enhancement has already been downgraded to AA by Fitch and may lose its AAA rating with Moody's and S&P, which would effectively foreclose the writing of new business. It also means the muni bonds they insure will be rated lower, which will result in a price decline for such issues.
This is no small matter given that some 137,000 bond issues representing $600 billion in bonds are affected. Similar downgrades of the other bond insurers are likely.'
LINK
'Over half of municipal bonds are insured by one of the large municipal bond insurers such as MBIA (nyse: MBE - news - people ), Ambac (nyse: ABK - news - people ), FIGIC and SCA. These entities are caught up in the collateralized mortgage obligation and collateralized debt obligation meltdowns because they also insured such debt instruments.
Ambac's credit enhancement has already been downgraded to AA by Fitch and may lose its AAA rating with Moody's and S&P, which would effectively foreclose the writing of new business. It also means the muni bonds they insure will be rated lower, which will result in a price decline for such issues.
This is no small matter given that some 137,000 bond issues representing $600 billion in bonds are affected. Similar downgrades of the other bond insurers are likely.'
LINK
re: Thoughts on Municipal Bond funds...Posted by Poodlebrain on 11/26/08 at 2:26 pm to Cold Cous Cous
The first thing you have to do is determine what form of investment makes the most economic sense. If you are in the 15% income tax bracket, is the tax savings on tax-exempt securities large enough to exceed the lost investment income? If the answer is yes, then tax-exempt investments are preferrable to taxable investments (note: any capital gains from investing in tax-exempt securities are subject to tax).
The best way to invest in tax-exempt bonds is to buy the bonds themselves so you will know exactly what you are buying and you can more accurately assess the issuers ability to pay the interest and principal as they come due. However, you can;t purchase municipals for less than $5,0000 face amounts, so many investors must resort to mutual funds for investing in tax-exempt securities.
If this applies to you look for a bond fund that specifically invests in securities issued by political units in your state of residency. Look at the percentage of securities in the fund that are private activity bonds as they are taxable for alternative minimum tax purposes.
The best way to invest in tax-exempt bonds is to buy the bonds themselves so you will know exactly what you are buying and you can more accurately assess the issuers ability to pay the interest and principal as they come due. However, you can;t purchase municipals for less than $5,0000 face amounts, so many investors must resort to mutual funds for investing in tax-exempt securities.
If this applies to you look for a bond fund that specifically invests in securities issued by political units in your state of residency. Look at the percentage of securities in the fund that are private activity bonds as they are taxable for alternative minimum tax purposes.
re: Thoughts on Municipal Bond funds...Posted by Fat Man on 11/26/08 at 3:32 pm to Poodlebrain
quote:??
$5,0000 face amounts
Is this $5,000? not $50,000.
quote:
issued by political units in your state of residency.
the advantage here is that you then avoid state income tax as well as federaly. In LA, I believe that's another 5%.
re: Thoughts on Municipal Bond funds...Posted by tigeralum06 on 11/27/08 at 5:10 pm to ebeyer2
haha, munipal
Pimco cancels dividend payments for 6 funds
December 01, 2008: 10:03 AM EST
These are all MUNI bond funds...
'NEW YORK (Associated Press) - Pacific Investment Management Company Inc. on Monday canceled announced dividend payments for six of its funds, saying the weak market has pushed the value of those funds below legal thresholds.
Continued severe market dislocations and recent further erosions in the municipal bond market have caused the values of the Funds' portfolio securities to decline," the company said. As a result, the funds' asset coverage ratios have fallen below 200 percent, it explained, and federal law prohibits a fund from paying or declaring common share dividends below that threshold.
The funds intend to resume paying and declaring dividends as soon as possible, Pimco said. The company said it may consider options including redemption of a portion of its auction rate preferred shares in order to resume dividends in the future.'
December 01, 2008: 10:03 AM EST
These are all MUNI bond funds...
'NEW YORK (Associated Press) - Pacific Investment Management Company Inc. on Monday canceled announced dividend payments for six of its funds, saying the weak market has pushed the value of those funds below legal thresholds.
Continued severe market dislocations and recent further erosions in the municipal bond market have caused the values of the Funds' portfolio securities to decline," the company said. As a result, the funds' asset coverage ratios have fallen below 200 percent, it explained, and federal law prohibits a fund from paying or declaring common share dividends below that threshold.
The funds intend to resume paying and declaring dividends as soon as possible, Pimco said. The company said it may consider options including redemption of a portion of its auction rate preferred shares in order to resume dividends in the future.'
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