Muni bond movement

slick

Just the past three sessions, my muni bonds have taken a decisive turn north, valued at higher prices , as I have watched them slightly erode over the past few months. I understand how interest rates and bond prices are negatively correlated, but it has been rather sudden and rather dramatic. They are paying between 4.1% and 5% , so I plan on holding them to first call date ( june 2016), but Im wondering if it is signaling some kind of bottoming of interest rates and may be be time to bottom fish some other bonds or if its any pattern at all. Any opinions on this?

AndyJ

Munis got whacked in December over the fear that the fiscal cliff fiasco might result in a limit on tax-free status, and for about the last month, they've drifted south in the usual seasonal pattern of a rough March due to investors' selling munis to raise $ for taxes. Now they're taking a jump; but whether that's in concert with the recent T move or it's the usual April bounceback after tax selling, I'd guess that'd be hard to separate out.

So it looks as if the drift down and this recent jump are both explainable without signaling a bottom in interest rates or anything else dramatic or macro.

FWIW, AJ

slick

Reply to @AndyJ:
Thanks Andy, I inherited the muni bonds, so this is my first experience with them. I always held bond funds before, but have all my bond exposure in individual muni bonds now. When they have first call date in 2016 I will be scrambling as to how to allocate the money, since I won't be able to get this kind of rate again in bonds of this quality. The only other bond exposure I have is in MAPOX and to lesser degree in some other funds. My total bond and cash exposure is abut 45%, about where I want to be right now.

BobC

Slick, I would absolutely hold the bonds, at least until the 2016 call date. If the issuers of the bonds were in potential doo-doo, thei prices would not be moving north. So I would sit tight and be happy collecting the very attractive tax-free income. Yeah, the feds might still screw the tax-free part up, but I imagine that would be down the road a bit, since almost everything they do is 'down the road'. There are a lot of people who would love to own those bonds!

AndyJ

Reply to @slick: My wife and I are going to inherit some individual munis someday, & we'll be on the same learning curve. I didn't put any links in that earlier post, but the Barron's income investing blog & the Abnormal Returns daily linkfest are where I've found good topical articles on munis (we do own funds).

Actually, there's a muni post on the Barron's blog this morning.

http://blogs.barrons.com/incomeinvesting/

http://abnormalreturns.com/

johnN

BobC hits it on the nail there. If you buy these bond previously, and if you sell them now, you may get a good INCREASED capital gain tax. I don't think you can find any good that would give 4+% yearly return almost guaranteed for 4-5 yrs. Most CDs are yielding craps, cannt find any good bonds that would yield >5% without any risks, and you can't find a better deal out there. Bedsides, what would you buy if you sell these, ? I think the only ones maybe making sense are more stocks but there maybe a large correction coming in the near future. I had the same questions previously but the bonds I bought are decend and I use these as my 'money market account/Cash holdings' since you can probably sell these at any time

slick

I did not mean to give the impression I was looking to sell these bonds, I will beholding them as long as I can. Just wondered if bonds may have bottomed enough to stick toe in. I do have a low duration bond fund for some of my cash. Thanks for the input, the munis are considered to be of high quality and am glad to own them, considering what I see is happening to others who seek better return in fixed income.
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