Munis
I see they got throttled again today. My assumption when I see that is “oh, another hedge fund selling” but at some point you gotta give me a break! Anything that I am missing?
Are we headed for massive muni defaults? At this point anything’s possible. My guess (and money) is that the answer’s no (on high-quality, which are additionally insured, issues). At this point, though…what would really, really shock you??
[quote=YHWY]Are we headed for massive muni defaults? At this point anything’s possible. My guess (and money) is that the answer’s no (on high-quality, which are additionally insured, issues). At this point, though…what would really, really shock you??
[/quote]
Do you tell your clients about the “inherent risk of default” of the insurers?
ABSOLUTELY!
In fact, hank, the scenario I always use is, "If the City, County and State of NY went bankrupt, do you honestly think MBIA (or whichever insurer) could cover that obligation?"
It makes a couple points simultaneously.
[quote=YHWY]In fact, hank, the scenario I always use is, "If the City, County and State of NY went bankrupt, do you honestly think MBIA (or whichever insurer) could cover that obligation?"
It makes a couple points simultaneously.
[/quote]
It means that the only time that you would need the insurance, it won’t be there. Also, since the insurance won’t cover you, you’re a sucker if you forgo a higher rate in order to fall for the insurance gimmick.
Are those the points that you were thinking of?
The points are that if the client really believes that a highly rated muni from the city, county or state of NY carries a legitimate default risk, that A) Yes, the insurance probably won’t be there and B) If you really don’t believe that there’s a legitimate default risk, that we may, in fact want to choose a highly rated non-insured bond for a hiugher yield C) That if they do believe there is legitimate default risk and just want the insurance to “feel better” that that isn’t a realistic point of view (as my scenario illustrated) and D) If they honestly believe that the risk of default of both the municipality and insurer, then we need to be looking for a more conservative investment for him or her. I know having investment alternatives flies in the face of everything you believe, but there you have it.
[quote=YHWY]The points are that if the client really believes that a highly rated muni from the city, county or state of NY carries a legitimate default risk, that A) Yes, the insurance probably won’t be there and B) If you really don’t believe that there’s a legitimate default risk, that we may, in fact want to choose a highly rated non-insured bond for a hiugher yield C) That if they do believe there is legitimate default risk and just want the insurance to “feel better” that that isn’t a realistic point of view (as my scenario illustrated) and D) If they honestly believe that the risk of default of both the municipality and insurer, then we need to be looking for a more conservative investment for him or her. I know having investment alternatives flies in the face of everything you believe, but there you have it.
[/quote]
I own you, broker010.
Give me a fucking break, Bobby. Go sell an annuity or start a Regrep forum or something. You are making a fool of yourself here. Your retort is EXACTLY par for the course when you’ve been hammered. Call a name, type nonsense or say “none of your business”. You have no knowledge, just sales ability, good for you. Bad for your clients.
default rate for AAA munis over the past 10 years is >1%
Greater than 1% or Less than 1%?
Less than 1%…
Oh, and Bobby, if you’d like to discuss your “ownership” claim further, I’m happy to give you my name, address and phone number so we can discuss it in more detail.
People sure are testy these days! Maybe it has something to do with equities off 50% in a year and nothing working other than cash. This too will pass (the market correction, not brokers getting chippy).
Guilty as charged, obviously. Man, GG, you couldn’t have picked a more innocuous topic…one would have thought.
I have been comfortable buying Quality school and sewer types. I do not expect to have credit problems but sure do look more carefully at the issues before buying them. Yields are very good and brackets will rise in the future and you will like them even more. If we have problems with these going forward then things went from very bad to worse. Also, not afraid of a little duration here.
I think I could start a thread called “Thanksgiving” and within minutes the indy and wirehouse guys would be at each others’ throats.
Went to a lunch a few weeks ago from MFS. Story was the same as the Eaton Vance lunch I went to back in March - defaults are low, values are huge relative to Treasuries, etc. At some point, I hope they are right. The EV manager said he would be disappointed if he did less that 10% total return this year. I haven't looked lately but I would guess he is down about 20%. Thanks credit crisis!I still strongly believe there’s value in the muni market. I’ve been using them quite a bit over the past few months. I’ve always thought that municipalities (for the most part) represent one off the more stable issuers of any bonds, just by nature of their structures. Obviously, specific revenue bonds tied to stand-alone projects can be more dicey.
I love GO bonds... two things we can count on; death and taxes...
try .001% for high yield munis, the default rate for single A and higher is nil. Give me a break , two years from now we’ll be heros for putting our clients in munis.
yeah, and when all these 6% munis get called and all that is out there is 4% they’ll love that…
[quote=Chuck]
two things we can count on; death and taxes…
[/quote]One day, I plan to use one to avoid the other. Now THERE’S a financial plan!
wow, you must be a CFP
Munis were off 6 or 7bps today. Assured and FSA got downgraded to AA2 by moodys and the evals on bonds insured by them dropped 20pts in some cases. The pricing services are a little whacky, the actual bonds didn’t drop that much. I expect you will see evals adjust.
Does anyone here think that a couple of years from now inflation will be way higher?
There is no pressure on prices now because of lack of demand. But as the economy ultimately gets stronger and demand rises, at the same time that the treasury is printing money to pay for all this shit we are going thru now, seems to me that inflation will be a big problem. Whih makes me a bit nervous about going out 10 -15 years to snag 4 1/2 to 5%
but what is the tax equivalent yield on that 5% for your clients in high tax brackets…7.5, 8%, that will definately keep you above inflation.
I think @15 yr. “A” or better munis (non-AMT, WITH insurance, such that it is) are yielding more like 5.25-5.65%, that’s not an insignificant tax-free difference.
More to your point, it may take several to many years for the economy to begin to heat up enough to cause inflation, in which case, you may be a good bit of the way to maturity or a call date, which would limit your price volatility. I think you skin that cat when you get to it.
Default stats are a bit misleading…Those default rates are when the bonds WERE rated AAA/AA/A. It does not count the bonds that were first downgraded to a lower rating and then defaulted. Don’t get me wrong, I am not predicting muni default problems. Predicting the opposite. Just giving out information.
IMHO, in most times (these are not most times), the bond insurance provides more than just default protection. It “can” provide better pricing and liquidity because it is a “safer” bond. I know, I know, if you have a seat belt and an airbag, a helmet does not really make you safer in a car wreck…but it kind of does.
ytreg,
I agree with your assessment of muni bond insurance, for this reason also: If, for example, a AA, by S&P (for example), issue seeks out and buys insurance, then, not only have the books and/or plan been analyzed by the rating agency(ies), but also by the insurance company who then (as you said, in normal times) has a vested interest in the issue not defaulting. At the very least, the issue has gone through one additional round of "vetting’ and analysis.
Good point YHWY. Question? Correct me if wrong but I believe that no organization can legally issue any municipal bonds if they already have another issue in default? ie they must pay off the old bond before issuing new ones. They cannot just “go bankrupt” and start over. Anyone know the answer? Also, big news now is that municipal ratings are essentially based on the same criteria as corporate ratings. Supposedly industry is working on new ratings so that munis are rated based on the fact that they are safer and have less defaults than corps…Anyone heard about this? I am an equity guy but these tf bond yields are insane. 10% Tax Equivilant. Other than reinvestment rate why buy stocks?
You may know this already, but the mkt gives us an estimate of what it thinks inflation will be.
I= yield of the treasury - yield of tip so for the 10 years to come: I= 3.56 - 2.5 = 1.1% Pretty mild.You all realize inflation is a made-up number by the government so that we don’t freak out about how much prices really go up by, right? Or are you still relying on 80-page computer printout “financial plans” to give advice?
All the more reason to trust the mkt and not the gov’t
there was a Pimco/California cef that was down 25% today because they suspended the divy. One more reason to stick with the individual bonds or the open end version. However, if that discount gets to be 40% or so, it might be a buy (but probably not for me).
sold a ton of a TX tf this wk that was selling at 93 with a coupon of 5.625 yielding 6% callable anytime at par with a premium call of 104 in 2018. my clients getting a killer tf rate and raking it in if it gets called… Aaa rated also… these opportunities won’t last for long.
how about good ole ornax (11% yield). have about 1mill in that fund. getting slaughtered. though I know it will come back in a huge way
Oppenheimer is like Kevin Bacon at the end of “Animal House” right before he gets stampeded - all is well, no need to panic! The tag line for that fund should be “all the volatility of a cef in an open ended fund”.
I own the pig myself.[quote=Gordon Gekko]Oppenheimer is like Kevin Bacon at the end of “Animal House” right before he gets stampeded - all is well, no need to panic! The tag line for that fund should be “all the volatility of a cef in an open ended fund”.
I own the pig myself. [/quote] Just think, 40 million consumers will get up at 3am tomorrow to buy stuff half off...we've been doing that with Oppy muni from the convenience of our comfy offices, and getting paid a 293% yield at the same time. Good times, good times.....When a fund is “on sale” for over a year, you have to wonder if they have more problems than they let on to. They claim they are seeing net inflows which is hard to believe.
at this point with a cost basis of 10.70 for my personal money, about 100k. I have no other choice but to take the nice tax free income and hope for it to get better. It will.
Sounds like every closed end fund I’ve ever bought other than ETJ.
just a little 'value added' for anyone doing muni bond business. in this type of low interest rate environment, experienced bond buyers want to know the vulnerability of the bonds mkt price if/ when rates make an upward move. the duration of the bond (not the # of years until maturity) is an excellent predictor of how many bps or percentage points a bond will move if interest rates make a 100 basis point move. obviously, you would adjust the equation accordingly, as most int. rate moves are between 25-50 bps.
you don't have to be a CFA to interpret duration. you don't need to get into convexity, and other hyper-analytical discussions, but the durantion # is VERY relevant, easy to explain, and experienced bond buyers will give you all their business if they know that you are managing their price sensitivity as well as all the other components.What would you recommend as a good source for bond-related information?
The trade confirm you will get after buying a bond from me.
[quote=Gordon Gekko]When a fund is “on sale” for over a year, you have to wonder if they have more problems than they let on to. They claim they are seeing net inflows which is hard to believe. [/quote]
Stop whining and take the tax loss then…creates more opportunities for those of us who have a long term view and an understanding of the markets…
Hyman,
You seem to be a little too ready to be a prick. Just an observation.
P.S. One with any understanding of the markets knows that whether or not GG sells his shares of any open-end funds neither creates nor destroys any opportunity for anyone.
other FA's in your office that do lots of bond business are a great source to tap for bond information. other great sources: a. your companies fixed income site b. your muni trading desk (when trader has time). * traders speak a language not always understood by the average broker/ client. ask them what they are talking about, and don't get intimidated. to reference my previous post, the real experienced bond buyer clients DO understand that rhetoric. learn it c. gooooooogleWhat would you recommend as a good source for bond-related information?
[quote=YHWY]Hyman,
You seem to be a little too ready to be a prick. Just an observation.
P.S. One with any understanding of the markets knows that whether or not GG sells his shares of any open-end funds neither creates nor destroys any opportunity for anyone.
[/quote]
You are indeed entitled to your opinion. Perhaps I could have found a more constructive way to express myself.
Having said that, if people are selling open end funds and forcing said funds to sell to raise cash, wouldn’t that push down prices and create opportunities if it is happening in sufficient quantity? Isn’t that exactly what is happening right now, at least to some extent?
open-ended fund share prices reflect the value of the fund's holdings, not supply vs. demand, which dictate the price of common stock (if more buyers show up than sellers, stock goes up.....blah blah blah). what has been happening right now, to a severe extent, has been program trades.
[quote=HymanRoth]
[quote=YHWY]Hyman,
You seem to be a little too ready to be a prick. Just an observation.
P.S. One with any understanding of the markets knows that whether or not GG sells his shares of any open-end funds neither creates nor destroys any opportunity for anyone.
[/quote]
You are indeed entitled to your opinion. Perhaps I could have found a more constructive way to express myself.
Having said that, if people are selling open end funds and forcing said funds to sell to raise cash, wouldn’t that push down prices and create opportunities if it is happening in sufficient quantity? Isn’t that exactly what is happening right now, at least to some extent?
[/quote]
Perhaps I should have been more clear…doesn’t the selling to meet redemptions create downward pressure on the price of the underlying securities, which would in this case be muni bonds?
Hyman,
When one open-end fund owner sells his shares of the fund, no, there are no actual (in this case) muni bonds changing hands.
YHWY,
Actaually, if net redemptions exceed the portfolio manager's target cash position then the manager has to sell paper to keep the same allocation. They have some flexibility, but net redemptions lead to liquidations of positions which leads to downwards preasure on asset prices (in this case munis, but the same goes for aa funds, stock funds, hedge funds, etc).ORNAX has a line of credit (they actually just increased it) if they get socked with a ton of redemptions.
GG,
Good point, that is whear the flexibility comes in, but again, increased leverage increases risk, because of that, leverage is usually limited by perspectus, in the end though, if net redemptions continue, the managers have to liquidate. Also, creditors usually require a minimum amount of equity in the funds (either by % or $), which also ties a manager's hands. I don't know if you have ACAS on your books (which is organised as a levereged close end fund), but that is why they have eliminated their div. If their equity falls under $5B, they have to repay 70% of their debt, so management had the choice of liquidating investments or holding back the div. On a bond fund, management does not even have the choice to eliminate the div. (if they did eliminate it , the tax free div would become taxable). So that only leaves selling assts. No matter what way you look at it, net redemptions put price presures on assets.
ornax better recover or i’ll be socked. i think they will. very well managed.
EZ,
why do you think they are well managed? They have 25% in an illiquid tobacco settlement, they have loaded up on leverage, and give floor traders authorization to buy odd-lotts without consulting the port managment team. They also were long in duration and low in credit quality when most funds were shortening duration and increasing quality. It seems to me that they are a fund that likes to take bets, and they don't seem to turn out well very often.
I remember 6 months before the credit crisis hit, Jones was saying that when it comes to risk adjusted return they were one of Oppys worst preforming bond funds.[quote=YHWY]
[/quote]
I see that you have decided to stop lying.
And now, back to those of us who actually hold securities licenses…
RiverPlate, and others…please re-read this thread. It strikes me that we may have a couple of newly licensed Series 7 Brokers (who probably scored well on the test) in our midst.
There was never a question as to whether or not massive owner-liquidations of any open-end fund could or would force actual assets to be sold (obviously, it would). This whole tangent began when Hyman (LOVE that handle), implied that if Gordon Gecko sold his ORNAX shares, that it would create an opportunity (ANY opportunity) for Hyman. (It would not.).
Somewhere, Hyman Minsky is laughing. What was the default rate in mortgages in 2005?try .001% for high yield munis, the default rate for single A and higher is nil. Give me a break , two years from now we’ll be heros for putting our clients in munis.
YWHY,
I've had my 7 for 8 years I spent 3 as a muni odd lot trader and 5 as a FA. But yes, I did do well on the test.
they have not loaded up on leverage.
RiverPlate,
Great job, all around! So, we’re on the same page now, right?
[quote=YHWY]And now, back to those of us who actually hold securities licenses…
RiverPlate, and others…please re-read this thread. It strikes me that we may have a couple of newly licensed Series 7 Brokers (who probably scored well on the test) in our midst.
There was never a question as to whether or not massive owner-liquidations of any open-end fund could or would force actual assets to be sold (obviously, it would). This whole tangent began when Hyman (LOVE that handle), implied that if Gordon Gecko sold his ORNAX shares, that it would create an opportunity (ANY opportunity) for Hyman. (It would not.).
[/quote]
Perhaps not GG acting on his own, unless he had a very substantial position. But indeed the collective action of numerous “GG’s” (or those sharing similar sentiments) are EXACTLY what is creating opportunities for my clients. If you don’t get that you’re too caught up in the technicalities.
[quote=RiverPlate]
and give floor traders authorization to buy odd-lotts without consulting the port managment team. They also were long in duration and low in credit quality when most funds were shortening duration and increasing quality. It seems to me that they are a fund that likes to take bets, and they don’t seem to turn out well very often.
[/quote]
As a floor trader wouldn't you agree that often the traders know a good odd-lot bargain when they see one? And that there is often a need to act decisively to grab a good price?
The Rochester has always maintained that they manage their funds to maximize tax free cash flow....not for the best short term total return. Hold on for the ride, reinvest dividends, and it will work out well for you and your clients, IMHO.
agree
HymanRoth,
I agree that they can see a good individual odd lot, however, their job is to find the best price and execution for buys and sells, not to look at targeted duration, overexposure to a given type of muni, or a given region, it is also not their job to check the overall credit quality of the protfolio and how 100 to 200 odd lots a month might affect that quality.
By the eay I agree with you that if we reinvest dividends and hold it long enough we will be fine, but I think that same can be said for most investments, wouldn't you agree?
Also, it is nice to talk to someone who doesn't view a disagreement as an act of war.
Thanks!
[quote=RiverPlate]
HymanRoth,
I agree that they can see a good individual odd lot, however, their job is to find the best price and execution for buys and sells, not to look at targeted duration, overexposure to a given type of muni, or a given region, it is also not their job to check the overall credit quality of the protfolio and how 100 to 200 odd lots a month might affect that quality.
By the eay I agree with you that if we reinvest dividends and hold it long enough we will be fine, but I think that same can be said for most investments, wouldn't you agree?
Also, it is nice to talk to someone who doesn't view a disagreement as an act of war.
Thanks!
[/quote]Same here.
Honestly I don't know enough to tell you if the 100-200 odd lots per month will have material affect on average duration/quality. I would presume the PM's must get some ongoing reports, and would have the ability to give some guidance to the traders on odd lots...or ask them to stop for a bit.
[quote=RiverPlate]
Also, it is nice to talk to someone who doesn’t view a disagreement as an act of war.
[/quote]River = well said. Sometimes some people on this board really go beyond reason.
[quote=RiverPlate]
EZ,
why do you think they are well managed? They have 25% in an illiquid tobacco settlement,
The entire spread muni market is illiquid right now. The tobacco bonds have never missed a beat and are unlikely to. The MSA is the deal of the century for big tobacco. They aren't going to upset the apple cart. they have loaded up on leverage, They use inverse floaters, which in normal times, you know, when we're not on the brink of depression, work just fine. What we have now and more so a month ago, is a liquidity crisis, not a credit crisis. Once this resolves, it's back to biz as usual. Today is a buying opportunity. and give floor traders authorization to buy odd-lotts without consulting the port managment team. They also were long in duration and low in credit quality when most funds were shortening duration and increasing quality. And this is what makes them not a good fund but a great fund; They aren't changing their strategy to save their management asses. You see, Rochester mgnt said they are long term income buyers in the spread market. Then their market falls apart and takes their flagship fund with it. Most managers, in that situation start thinking about their future and decide it's time to get real short real fast. The problem with doing that, of course, is that it locks in the loses and destroys the fund's income. That in turn screws all the fund's shareholders who have no say in the matter. Those funds that did shorten screwed their shareholders for the sake of saving the portfolio manager's job. Muni investors who buy individual bonds would never sell into a falling market. It makes no sense. Those bonds will recover their price and continue to pay their coupon. Other than window dressing, there is no reason to sell. As the muni markets recover so will the fund. Praise Oppco mgnt for having the balls to stick to their strategy and thus not screw their shareholders. It seems to me that they are a fund that likes to take bets, and they don't seem to turn out well very often. Really? What bets would those be? They invested in airline bonds and mopped up. They've done the same with tobacco. These managers invest the money exactly as they said they would. Their analyst are made up of the best and the brightest. They don't place bets, they make well researched investment decisions in one of the toughest markets on the street. Today the non accrual rate for ORNAX sits at under 2%. Three years ago when ORNAX was a Morning Star five star fund it's non accrual rate was over 4%. Today's shareholders have a higher quality portfolio with a higher yield than did those share holders three years ago. Every major position this fund has taken has worked. They haven't lost yet. And, buy the way, most if not all of those bonds in non accrual will eventually pay in full. They always have. They have to. Here the way that works: if the municipality ever wants to borrow money again it needs to clear up its outstanding debt. So out comes the checkbook. And if the defaulted bond happens to be something like a redevelopement project backed by muni bonds, well, that project stays a big gaping unfinished eyesore to the community until someone comes in and pays off the bonds backing it. The community gets to look at the unfinished stadium. condo project, shopping center, whatever until someone writes a check to the bond holders. It's really simple, muni bond holders are first in line to get paid and they really do have the debtor by the short and curlies. It could take a little time but the muni holders almost always get paid off. This is why the major ratings companies are moving to a global rating sysytem with munis after the first of the year. They will seprate munis, because of their stellar track record, from other types of debt. Almost all munis will increase in rating. I know, probably not in the Jones report. I remember 6 months before the credit crisis hit, Jones was saying that when it comes to risk adjusted return they were one of Oppys worst preforming bond funds. And the same would be true for any long term income investment let alone one that is non rated. ORNAX invests for maximum income and they do so in a little understood place. [/quote]great reply bondguy, with info I garnered from opps insightful conference calls but was too lazy to post as a reply.
Just so you know, it wasn’t me selling today that caused the 3% hit in ORNAX’s NAV. I’d say munis are much more disappointing than the overall market.
we had the Oppy wholesaler in today, swears by ORNAX.
Says Fielding is optimisitic, is not changing his style, and swears a year from now we will look back and say “what was i thinking?”
For the past two years I’ve been saying that.
It’s not just ORNAX though. Eaton Vance is getting killed as they have long dated stuff and their Treasury hedge has backfired. Munis are falling off the face of the earth and I will be getting clients calling in to redeem soon when they see the NAV’s. You can only say “but they aren’t defaulting” for so long. Clients don’t care.
ORNAX - 11% yield? Been there done that, want no part of it.
Dont forget the AMT too. Called them today and they told me 35.0339. Must be all those tobacco bonds?
ornax is getting pitiful but I’m sticking with it.
Another day, another 1% plus piddled away. I’ve been throwing a little money at the Evergreen (I know, Wachovia owns them) Strat Muni fund. The manager keeps the duration so short that it doesn’t get whacked on days/weeks/months like we’ve had lately.
tobacco bonds are not subject to amt.
A sinking fund is used when term bonds are created. Municipalities usually prefer a level debt service, but insititutional investers like large maturities, so to solve the problem, they roll several years into one maturity and use a sinking fund to pay off a set amount of prinicpal each year after the sink starts. Only escrowed or prerefunded sinking fund bonds would be backed by treasuries, not all sinking fund bonds.
mnbondguy - Good corrections to those who have not a clue about muni bonds.
Yeah, let's look for bonds w/ sinkers to get that 'treasury qaulity' and let's stay away from tobacco bonds to reduce our amt exposure. C'mon folks -learn your bonds or stick w/ your funds. To those that own ORNAX, I remember that fund. I recall that they owned alot of airline debt as well as TOB's. I don't know if that changed but could be a contributor to the underperformance. Also heard about a tender offer on SC 6 3/8 due in '30 for anyone who cares. The issuer wants to buy bonds back - check w/ your trading desk for the December 2nd notice. I like having a muni thread - let's keep it going.Anyone heard any updates on MBIA lately?
[quote=dizzy]
mnbondguy - Good corrections to those who have not a clue about muni bonds.
Yeah, let's look for bonds w/ sinkers to get that 'treasury qaulity' and let's stay away from tobacco bonds to reduce our amt exposure. C'mon folks -learn your bonds or stick w/ your funds. To those that own ORNAX, I remember that fund. I recall that they owned alot of airline debt as well as TOB's. I don't know if that changed but could be a contributor to the underperformance. Also heard about a tender offer on SC 6 3/8 due in '30 for anyone who cares. The issuer wants to buy bonds back - check w/ your trading desk for the December 2nd notice. I like having a muni thread - let's keep it going. [/quote] Not sure what is worse, my spelling or my typing...Problem with ornax is that it is a high yield fund...with the downgrade of the bond insurers, the supply of yieldy muni's has exploded. Add this to the fact that mutual funds are seeing outflows, insurance companies are running low on capital, the arb buyers can't buy because they are deleveraging and that there is a real risk of more downgrades, increasing defaults and a very illiquid market, ORNAX could go lower. Pricing services (who effectively determine NAV) are having a hard time putting a price on a lot of lower rated bonds currently, there are few bidders. There is also a record number of new issue muni's trying to come to market in the next 60 days, so I would be surprised if we see a big improvement in the market any time soon. If 3% long ust's cant bring a bid back to the muni market, what can??Simply NO confidence that this housing crisis will improve leading to lower RE taxes and REV for all munis. Treasuries have no relavance at the moment.
whalehunter, i'm missing your point regarding lower taxes and revenue for all munis during a housing crisis. could you explain? Also, treasuries are extremely relevant now. These historical spreads are creating some of the best corporate opportunites in a long time (GE, CAT, etc) no?
[quote=bondking]
whalehunter, i'm missing your point regarding lower taxes and revenue for all munis during a housing crisis. could you explain? Also, treasuries are extremely relevant now. These historical spreads are creating some of the best corporate opportunites in a long time (GE, CAT, etc) no?
[/quote] Whalehunter is referring to the fact that municipalities cash flows will be impacted by a lower taxable valuation. This lowers debt service coverage ratios on bonds directly backed by ad valorem property taxes. Lower sales taxes, lower gasoline consumption and lower income taxes at the state/city level all affect coverage and the overall ability to balance a budget. Also, who cares about spread to Treasury? That has significantly helped me sell a bond anyway. My clients don't seem to care.[quote=dizzy][quote=bondking]
whalehunter, i'm missing your point regarding lower taxes and revenue for all munis during a housing crisis. could you explain? Also, treasuries are extremely relevant now. These historical spreads are creating some of the best corporate opportunites in a long time (GE, CAT, etc) no?
[/quote] Whalehunter is referring to the fact that municipalities cash flows will be impacted by a lower taxable valuation. This lowers debt service coverage ratios on bonds directly backed by ad valorem property taxes. Lower sales taxes, lower gasoline consumption and lower income taxes at the state/city level all affect coverage and the overall ability to balance a budget. Also, who cares about spread to Treasury? That has significantly helped me sell a bond anyway. My clients don't seem to care.[/quote] Thx Dizzy, as a salesman I tend to be short winded LOL There is no relationship between treasury yields and munis. Treasuries are the safe haven at the moment.Typo correction to my previous post:
Treas/Muni spread has never really helped me sell a bond. My clients don't care.^^^thanks. i knew what you were getting at
i should've been more clear in my previous post. i was referring the treasury/ corporate spread, not the muni spread. the trea/corp spread is VERY helpful in this mktR u selling corps outside of IRA’s bondking?
no and yes. sorry, can't think of a better way to answer. for munis, i'm in a low supply state. this is a unique time for some of these 10 year corp issues. i'm loving this yield, and yes, if it works for my client, i would definitely position some of this stuff in taxable accts. of course, quality is king in here, but anyone would be a fool not to consider the rare opportunities for corporates over munis right now. it ain't gonna last.
Mnbondguy:
I have been in Investments with a Series 7 (plus about 4 more licenses) since 1998; 7 years of which is just Fixed Income Trading. I asked a dealer who just underwrites munis about what you said about sinking funds. His response was that if the sinking fund was placed in anything other than a T-bond; he's never seen it. (The dealer has been in the biz for about 25 years.) He also said something to the fact that an accountant for a municipality would need it to be in a security like a T-bond on their balance sheet. I tried googling the answer and didn't find anything on any reliable sites. If I am wrong; I definately want to know. That being said: Where did you get your information?[quote=lady_trader]Mnbondguy:
I have been in Investments with a Series 7 (plus about 4 more licenses) since 1998; 7 years of which is just Fixed Income Trading. I asked a dealer who just underwrites munis about what you said about sinking funds. His response was that if the sinking fund was placed in anything other than a T-bond; he's never seen it. (The dealer has been in the biz for about 25 years.) He also said something to the fact that an accountant for a municipality would need it to be in a security like a T-bond on their balance sheet. I tried googling the answer and didn't find anything on any reliable sites. If I am wrong; I definately want to know. That being said: Where did you get your information?[/quote] you are confusing escrowed/prereed bonds with sinking fund bonds, they are two completely different definitions. Bonds with sinking funds can or cannot be prereed, usually (not always), when a bond is prereed, it is done to the first call, which is before the sinking fund even starts, so the sinker is irrelevant. Prereed or escrowed bonds are usually escrowed with ust's, usually in the form of slugs, but there are a small percentage escrowed with agency collateral, a few very old deals escrowed with G.I.C's, and I have even seen a deal that the univ of mn escrowed with AAA muni's, (doubt they are still AAA). Accountants for a municipality would have nothing to do with maintianing the escrow account, the escrow agent would. Escrow agent is usually a trust dept from a large bank. Once the monies are depositied in the account, usually slugs are purchased, the escrow agent and attorneys verify it is sufficient to pay the principal and interest on the refunded bonds. The munipality now only pays on the new issue, the "refunding" bonds. I got my info by selling billions, yes billions of $$'s of bonds over the last 20+ years. Hope this helps. Slugs = State and Local Government Securities. The treasury created these after the yield burning scandal years ago to help municipalities create escrow accounts with out the worry of creating an improper arbitrage.Another WTF day in muniland! I am getting another check for an existing shareholder and the pucker factor will be high when buying more munis.
Need to be careful these days but yields are higher than they should be. I spend more time looking bonds over before I buy them. At AGE you had the sense that bonds in inventory were vetted to a degree. At Wachovia and their ebay platform you see it all and had better be careful. I preferred the friendly confines of AGE.
Listened in on the conference call today for ORNAX. Managers haven’t seen anything like this for the 30 years they have been around. Average muni in ORNAX trading at about 50 cents on the dollar. 98.4% of bonds paying like they are supposed to. 1.6% of bonds in some form of default, and of those, there average recoup is 60% historically. They haven’t had a net redemption on the fund this year, as dividend reinvestment and inflows have covered the panic selling. They made a compelling case that now was the time to back the truck up.
Good to hear I guess but would they ever tell us that it wasn’t the time to be buying?
it makes me feel better that fielding and his staff have millions invested in their own funds. they’ll take care of business.
[quote=professional1]
Just think, 40 million consumers will get up at 3am tomorrow to buy stuff half off...we've been doing that with Oppy muni from the convenience of our comfy offices, and getting paid a 293% yield at the same time. Good times, good times..... I'd be careful with Oppy. The fund was at 12 billion one year ago and now they are at roughly 6 billion (asset devaluation anyone?). They also had half a billion in redemptions in Sept. They are too aggressive in my book as leverage is being called away in the bank. I believe they are taking on redemption risk. Not only that, I'd take a look at the addendum that they added to the prospectus on Oct. 21st stating part of their portfolio is illiquid and not properly valued.....I'm just sayin be careful as clients have already been burned badly enough that own this stuff![/quote] I too listened to the call yesterday. Fielding did make a compelling case for purchase. Not in a rah rah bang the drum-buy my fund kind of way. More like- this market makes no sense and savy investors will ultimately see the value in munis and buy. He reiterated that the current market conditions reflect a liquidity crisis, not a credit quality crisis. It is his belief that all the factors affecting the fund are temporary. He makes the distiction that defaults cause permenant damage. As Ranksocks has mentioned the non accrual rate in the fund currently stands at 1.6%. This versus roughly 4% when the fund was a five star super star fund. Fielding used the fact that buyers using CDS to insure their bond positions can insure Campbells Soup corporate bonds for 1/5 the cost of insuring NJ GOs. This makes no sense. He also told us that in his opinion the treas/muni spread ratio is ludicrous and at 160bp, the AMT spread is equally ridiculous. Historically that ratio stands at 15 to 25beeps. YTD, ORNAX has net positive inflows. Oct was an outflow month but Nov again net positive inflows. For those who aren't aware fund flow is a dividend affecting factor. So it is important to watch. This fund has over 1000 issues so has plenty of room to sell without affecting the div, but still something we need to watch. Additionally they have cash reserves and a credit facility to draw on. Again, to his credit, Fielding has no intention of altering his strategy. Judging from the questions asked, I believe this sits well with most advisors. If anything they are worried that Fielding will buckle to pressure to shorten up, or buy higher quality than the warty stuff he thrives on. The fund's death by a thousand cuts will continue until the now thinly traded muni market shows more signs of life. With TSY at zero the market is telling us cash is king for now. +1 on Ranks back the truck up. Not only for this fund but for all munis. Remember: Buy straw hats in winter. Well. it's freaking nuclear winter in the muni market right now. I'll take that 293% return until sanity returns.[quote=AGE2RIA]
Had a client yesterday want to buy a 25 year muni. Schwab Institutional had the 5.75 of 2025 at 94.918. The very same bond at AGE/WS/WFC was offered at 98.088 w/2. I like this RIA gig.[/quote] I am skeptical, what is the cusip? If the bond was that overpriced at WS/AGE, it was certainly a street offerring on bondesk, and not a bond they own. Schwaub doesn't have any institutional muni brokers or traders, don't let the name fool you. If schwaub has any of their own inventory, it is tiny.I will likely buy more munis Monday and the pucker factor will be off the charts - a sure sign I will be doing the right thing.
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What are valuations on client statements going to be? Many market players that normally bid municipals are no longer in business. Reducing liquidity in the secondary market. Bond insurance companies have been downgraded below the underlying ratings of the bonds they insure. Without a norm of a AAA rating to go by, evaluators must rely upon matrices or levels assigned by what few bidders still exist. Treasury bond and note yields, once a benchmark for determining a spread relationship for municipals, have fallen to below 3% on the 30 year bond and federal funds have moved to zero. Municipals that once traded as a percentage of treasury yields now yield 200-350 basis points more than treasuries.Here’s some commentary from Goldman Sachs that seemed to be interesting…
http://www2.goldmansachs.com/gsam/docs/funds/commentary/commentary/si-18_high_yield_municipal_bonds_retail.pdf
Today was the first day muni funds had an uptick. It’s about freakin’ time to get on a roll! How’s that for a technical analysis?
Gordon, that's as good as anything i've read.
I think we are on day three of an upswing. EANAX was yielding 8% and they’ve had no defaults. If conventional thinking (munis = screaming buy) comes around, I am expecting 20% total returns. I just pulled that number out of the air, I’d take 10%.
GG,
We seem to be at a point where the muni market (and broader economy and markets) either A) Crumble or B) Rally like a MF’er. If it’s A, we are all in the wrong line of work, obviously.
The longer this scheisse lasts the more A) seems like a possibilty. B) is the only option in my book. I have been playing it chicken with the funds, buying more of the shorter duration/high credit quality stuff like Evergreen and MFS versus the Oppenheimer/Eaton Vance swing for the fences stuff.
I have been focusing on individual muni issues. Can’t argue about the possibility of A) at this point. Call me a dreamer as a soldier on anyway.
Have you checked out the site “Municipal Market Advisors” website? A wholesaler turned me on to it, not a bad tool.
[quote=BondGuy]
Gordon, that’s as good as anything i’ve read.
[/quote]Thanks for the feedback. I don't know as much about the sector as you, but it sure as heck struck me as pretty compelling stuff.
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