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Any thoughts on High Yield Muni Funds?

I've read several threads here about high yield corps being hot right now. But high yield munis have been chugging along and looking like they are gaining some momentum. Are they a buying opportunity now? I am in the camp that inflation will not be an issue for years.

Comments

  • edited April 2016
    Aren't you a little late to the party? They have been on a tear since January 2014. That is when they were a buying opportunity and returned in the mid to high teens. The trend continued into 2015 and remains intact YTD. If you think Treasury yields will stay low or go lower junk munis will be fine. They may even be fine if Treasury yields rise a bit here. I have about 35% in NHMRX in an overall scattered (for me) nest egg of junk corps, emerging markets debt, and bank loan. Since I have never met a rich technician I don't have much use for most technical indicators. But on a short term basis, the 14 day RSI on the junk munis (and for that matter the bank loans) is severely overbought. If oil is to continue it's move up and equities hit new all time highs I would think that junk corps and emerging market debt would be the place to be.
  • @Junkster thanks for the reply. I was watching munis (and have a position in them) since you and another poster Dox? mentioned them. I think most types of interest paying bonds will do well over the coming years. I just don't see where inflation will come from. Yes there will be areas of inflation - housing - but workers will not have power to demand higher wages. There was an article on Marketwatch.com about silicone valley tech workers fear of losing their jobs, low pay and increases. Also, as baby boomers retire, they will be looking for interest and dividends. That is something I don't see mentioned in the news media.

    High yield corps highly correlate with stocks - I'll watch them.
    High Yield foreign bonds correlate with the US dollar - I'll watch them.
  • https://www.yahoo.com/finance/news/puerto-ricos-house-approves-moratorium-052018350.html

    I just saw this. I think this is priced into the market. And I think ETFs like HYD and mf like NHMAX do not have any Puerto Rico exposure.
  • So far the overall muni market has managed to avoid contagion from Puerto Rico and Chicago. This is partially due to a supply shortage which has trumped the potential credit risk. Hard to say whether this will change.
  • edited April 2016
    There is something that happens with municipal bonds in the Spring--- April, May, June--- but I can't remember what it is (and from this you can infer correctly that I have only pedestrian experience with muni's). Is it peak-season for new issuance, or is it when things dry up? If the former, may want to wait and see what the quality and quantity of new issuance is, identify muni PMs whose opinions you respect and see what they think of it, etc. before committing fresh funds to the asset class. My impression is (1) HY muni has had more than a good run and is getting richly valued, and (2) HY muni has very poor liquidity, and when things go south it can have a "mind of its own" and behave quite differently than investment-grade (which is why I have avoided it).

    @DanHardy You might check out this Thornburg white paper I posted awhile back re. liquidity concerns:
    http://www.mutualfundobserver.com/discuss/discussion/16211/municipal-bond-market-risk-liquidity#latest
  • @heezsafe
    That's an interesting article. I just don't know. Muni bonds were for widows and orphans back in the day - a safe investment. Today? Maybe they are just like any other asset - traded a lot.

    Long term I think I'm correct that interest rates will remain low and baby boomers will be looking for yield.

  • Junk Sovereigns ?? A Real Reach?

    Markets | Thu Apr 7, 2016 4:46pm EDT
    After 15 years, Argentina set for bond market return
    By Joy Wiltermuth

    Now it will hold a five-day roadshow in the UK and the US as it preps a new bond expected to raise $12 billion - or more - to help pay off holdouts who had rejected a debt restructuring.
    Finance Secretary Luis Caputo and Undersecretary Santiago Bausili will each lead teams meeting with investors in London, Boston, New York, Washington and Los Angeles.
    Deutsche Bank, HSBC, JP Morgan and Santander are arranging the meetings, but few other details were immediately available.

    "The dealers on it are keeping it hush-hush until they are ready to come to market," said Sean Newman, a senior portfolio manager at Invesco Fixed Income.

    One of the lead banks told IFR that investors had not yet been given any information about the ultimate size of the deal or the potential currencies of issuance.
    At US$12bn, the transaction would be the largest ever from an emerging markets borrower, according to Thomson Reuters data.

    "It does mean something really huge for Argentina," said Bianca Taylor, a senior sovereign emerging markets analyst at investment management firm Loomis, Sayles & Company.
    "They are back in the game with the curing of this longstanding issue with the holdouts, and they once again have access to the foreign capital markets."

    One trader in New York said he had heard yields whispered in the 7.5 percent range, but said 8.5 percent on a 10-year bond was a more feasible target given the current climate.

    But Taylor said a useful comparable would be a Brazil 10-year currently trading at 6.13 percent.
    "The talk of 7.5 percent seems rich for a country still in a balance-of-payments crisis and just coming out of default."

    In addition, after being unable to raise debt abroad for so long, Argentina might well come to market with a debt sale larger than US$12 billion in order to replenish its coffers and plug at least some of its fiscal deficit.
    http://www.reuters.com/article/us-argentina-bonds-idUSKCN0X42O6

    @DanHardy You're not the only one expecting low rates to remain for some time.
    Yield Curve Madness
    Posted on April 6, 2016 by David Ott Acropolis Investment Management
    ,,yield on the 10-year US Treasury hit 1.73 percent. After starting the year at 2.24 percent, the benchmark yield dropped to 1.63 percent when the stock market bottomed out on February 11th and then climbed to 1.98 percent before falling again.

    As low as your yields are today, they are among the highest in the developed world, as the chart below shows. The chart includes the G7 countries (with the benchmark eurozone rate representing Germany, France and Italy), Switzerland and Australia (each representing the highest and lowest rates in the developed world).
    image
    This chart is striking for at least three reasons. First, the overall level of rates is just appallingly low across the world. The idea that the highest rates are still a paltry 2.5 percent is troubling.

    Second, and even more bothersome, is that three of the curves are negative all the way out to 10 years. There are other countries with negative yields like Denmark, but the idea that the euro benchmark curve is negative is striking.
    Finally, there are only three ‘normal’ yield curves, where rates rise as the maturity goes out further into the future. The US has the steepest curve, although it’s far flatter now than it was six months ago.
    http://acrinv.com/yield-curve-madness/
  • Ted said:
    When the article came out three months ago sentiment in junk bonds was at its most negative in recent memory - even more negative than in 2008. Gundlach was calling for a junk crash as he has for much of the past 9 months. So naturally what transpired was a vicious rally in junk bonds now positive for the year and leading the major market equity indexes in 2016.
  • @TSB_Transfer I always thought it was nuts that European countries such as Italy had lower 10 year yield than the USA.
  • edited April 2016
    Macro View
    The Global Liquidity Trap Turns More Treacherous

    April 07, 2016 Global CIO Commentary by Scott Minerd © 2016 Guggenheim Partners,
    As options for further QE diminish, negative rates have become the shiny new tool kit of monetary policy orthodoxy.

    If Dr. Draghi and Dr. Kuroda do not get the outcome they want from their QE prescriptions—which is highly likely—then more negative rates will be on the way.

    It would not be a surprise to see the overnight rates in Europe and Japan go to negative 1 percent or lower, which will in turn pull down other rates along their respective yield curves.

    Negative rates at these levels would make U.S. Treasurys much more attractive on a relative basis, driving yields even lower than they are today.

    If the European overnight rate were cut to minus 1 percent from its current level of negative 40 basis points, German 10-year bunds would be dragged into negative territory and we could see 10-year Treasurys yielding 1 percent or less.
    https://guggenheimpartners.com/perspectives/macroview/the-global-liquidity-trap-turns-more-treacherous
    @DanHardy
    As @Junkster has observed,High Yield Muni's may be a bit pricey here.But an investor has to measure the possible tax advantages against current risks,I'm going to see my tax accountant tomorrow and I think that subject will come up.
    Closed End Option
    Nuveen Municipal High Income Opportunity Fund Price Premium +1.37% to N A V 52 Wk Avg -0.42%
    NMZ Distribution Rate
    Market (As of 04/06/2016) 6.48% Seeks to provide:
    Attractive monthly tax-free income
    image

    Read more: http://www.nasdaq.com/symbol/nmz/stock-chart#ixzz45CK2V9m5
    E T F Option Div/yield Monthly /4.47%
    SPDR Nuveen S&P High Yield Municipal Bond E T F Stock Chart (E T F)
    HYMB


    imageimage
  • edited April 2016
    Total return charts are the only way to go with bond funds as they include reinvested dividends. Price only charts for bond funds don't *remotely* begin to paint an accurate picture. Don't mind me, just one of my pet peeves. I recall Gundlach saying on CNBC late last summer how junk bonds (JNK) were making 4 to 5 year lows. Nothing could have been further from the truth as he was just looking at a price only chart and completely ignoring dividends.
  • @Junkster said 'Don't mind me, just one of my pet peeves."
    Thanks for the hint on a more accurate way to explore a truer picture on investment returns.Now a hint on where to find a good source for a total return chart.
    P S I don't think most here mind you adding your input,peeves or not !
  • where to find a good source for a total return chart.

    Here's one source. Stockcharts.com shows total return charts by default. You can also view price-only charts.

    Here's a video that explains how to view both kinds of chart:
    http://stockcharts.com/articles/mailbag/2014/01/how-can-i-plot-dividend-adjusted-data-and-unadjusted-data.html

  • edited April 2016
    i hope you're now suggesting that Gundlach doesn't know how to calculate total return for a bond fund.

    he was referring to spread widening which started in August. junk spreads went to widths that were unheard of outside a full blown recession at the time (and earlier this year.) they have contracted since as you and others have noticed...

    best, FA
    Junkster said:

    Total return charts are the only way to go with bond funds as they include reinvested dividends. Price only charts for bond funds don't *remotely* begin to paint an accurate picture. Don't mind me, just one of my pet peeves. I recall Gundlach saying on CNBC late last summer how junk bonds (JNK) were making 4 to 5 year lows. Nothing could have been further from the truth as he was just looking at a price only chart and completely ignoring dividends.

  • edited April 2016
    fundalarm said:

    i hope you're now suggesting that Gundlach doesn't know how to calculate total return for a bond fund.

    he was referring to spread widening which started in August. junk spreads went to widths that were unheard of outside a full blown recession at the time (and earlier this year.) they have contracted since as you and others have noticed...

    best, FA

    Junkster said:

    Total return charts are the only way to go with bond funds as they include reinvested dividends. Price only charts for bond funds don't *remotely* begin to paint an accurate picture. Don't mind me, just one of my pet peeves. I recall Gundlach saying on CNBC late last summer how junk bonds (JNK) were making 4 to 5 year lows. Nothing could have been further from the truth as he was just looking at a price only chart and completely ignoring dividends.

    Not exactly. The first link in October 2015 he says junk bonds are at 4 year lows. REALLY WRONG! The second link from this January he says junk bonds are trading at levels below those seen during 2012. REALLY WRONG! I would have to look further but he also said something to the same effect late this summer. He says nothing about spreads but simply junk bonds. When I saw him on CNBC this summer he was using a chart of JNK. Gundlach likes to make news enhancing announcements. I hope there is a crash in junk bonds so he can be proven right about that many times prediction.

    Edit: For the record, junk went into a steep decline in January and bottomed on 2/11. At its lowest point it hit levels not seen since 12/11/12. Junk bonds were never at 4 year lows at anytime. When he made his comments in early January of trading at levels below those seen during 2012 not even remotely close. To have been at levels below those seen in 2012 junk would have had to have declined another 12+% from its 2/11 lows.

    http://citywireselector.com/news/gundlach-credit-concerns-and-what-happened-with-bill-gross/a847840

    https://www.markettamer.com/blog/gundlach-on-the-feds-amazing-blunder
  • i glanced over one of your links and found the following references:

    "The Junk Bond Index rate has increased significantly… driving prices downward to a 4-year low" and "High-yield spreads over Treasuries are significantly higher now than they have been leading up to any Federal Funds “Liftoff” during previous cycles." (bold face is mine)

    the first quote talks about rates while the other talks about spreads.

    Generally, reference to 'prices' of junk bonds is reference to spreads. just like one quotes equity at a dollar price, as in 'VRX trades in low $30s', you quote junk in spreads - 650 bps to treasury.... that's the convention. and Gundlach, of all people, who breathes bonds, knows it better than anyone.

    i venture to say that CNBC put up the JNK chart to illustrate his point, and I absolutely agree that using price only chart for JNK is misleading. All investments are total return vehicles, and the higher the yield, the more important it is to incorporate it in any return discussion.
  • This is one of the better threads since I joined.

    Any thoughts on how this liquidity trap will affect stocks? (I do not think I'm going into stocks anytime soon.)

    My guess is that we have not come to the 'point of recognition' about the trap. Once that happens I'm guessing it would be a negative for stocks and then a trading range at a low p/e. Possibly, there would be another internet stock crash.


  • edited April 2016
    nobody knows.. with a Brexit threat and the worst anticipated earning season since 2009, the long bond might still have juice in it. high yield corporates correlate with equities though, and more recently with the price of oil. less disastrous earnings shortfall and stable commodity prices will support spreads.

    high yield munis have a different credit profile and not necessarily correlate with corporates. i usually invest in regular munis issued by my state to avoid taxation, some through OEF, some through CEFs. i started trimming the CEF portion due to both -- value appreciation and discount contraction. i still maintain quite a bit, but wouldn't be adding here.

    in the CEF world, there are still some good discounts to be had -- mostly in corporate bonds and loans and EMD.

    i know that mr. Junkster here wouldn't touch CEFs for their equity like volatility, but he is in a class of his own with a very successful momentum following strategy with tights stops.

    many of us can't necessarily pull it off and are stuck with traditional diversified portfolio of investments, including equities. we tactically change the allocations based on our own views of the world.

    sorry for getting off topic.
  • DanHardy said:

    @Junkster thanks for the reply. I was watching munis (and have a position in them) since you and another poster Dox? mentioned them.

    The name is not Dox it is Dex. While reading past threads I came across some good posts he made about cash flow in retirement which changed my mind about its importance.

  • DanHardy said:

    This is one of the better threads since I joined.

    Any thoughts on how this liquidity trap will affect stocks? (I do not think I'm going into stocks anytime soon.)

    My guess is that we have not come to the 'point of recognition' about the trap. Once that happens I'm guessing it would be a negative for stocks and then a trading range at a low p/e. Possibly, there would be another internet stock crash.


    That point of recognition may be a long way off. The baby boomers have in their memory the early 1980s and their high interest rates. I think that is part of the reason people got into gold and expect inflation. They see the Fed 'printing money' and they think that it will cause inflation. They think it has to cause inflation all that money printing. There are many more pressures offsetting the Fed actions that the Fed actions don't really do anything.
    The classical causes of inflation, full employment, full factory utilization and shortages of materials are not a factor when you are talking about world wide free trade.
    Then there is automation and artificial intelligence. They have not really gotten started and will keep inflation down.
    I feel I just talked myself into changing my weighting of stocks and bonds!
  • Thanks fundalarm nice post above. So let's get off topic. Any insights on bank loan/senior loans/leveraged loan/floating rate funds???? Talk about a stealth bull market or at least one under the radar. Some of the open end ala EVFAX have had but one down day since 2/17 and a multi percentage rise. Plus juicy yields around 5%. I hold EVFAX and SAMBX overbought as they are. Not as exciting recently as NHMRX or the junk corps and emerging markets debt when they are moving, but real steady eddies. Below is an excerpt of some comments in early March in Barrons on this often misunderstood asset class.

    >>>>>Most loan funds have attractive yields of 5% to 6%—up to 9% for closed-end funds. Loan funds have credit risk, but are much less volatile than junk-bond funds when credit conditions weaken; and loan investors get paid back before bondholders in the event of a default. The loan market has about 4% exposure to the troubled energy sector now, compared to 15% for junk bonds.

    As an added bonus, most loans have interest rates that float with prevailing rates. So if the Fed hikes several more times, many loans will yield more. Without interest-rate risk, loans tend not to correlate with other fixed-income assets.

    Now is a good time to buy, because these loans are selling at about a 10% discount to par. They sold off, along with high yield, as investors worried that the U.S. was going into recession, but they haven’t recovered. “The asset class has always offered a nice risk-adjusted return over a three-to-five- year time period,” says Craig Russ, co-director of floating-rate loans at Eaton Vance. “But the last two years they’ve underperformed, creating this attractive entry point.”

    There’s another good sign, says Jean Joseph, a portfolio manager at Goldman Sachs Asset Management: The default rate priced into the loan market is 7.5%, when the average default rate historically is 3%; and the current rate is still below that. “The market is pricing in defaults close to 2.5 times what we expect this year,” Joseph says.<<<<<<<<
  • @Junkster: i agree these have been better relative value. please note that lots of loans are made to junkier credits, especially those to smaller energy companies. the recent oil action has resulted already in a bunch of bankruptcies, but more to come, since a lot of interest coverage modeling was done with oil at above $50.

    loans, even more than bonds, are very flow dependent. since joe retail is not very much educated about loans, their flows haven't swelled as much as those for the bonds, hence the underperformance (in my view). another kink is that latest SEC liquidity proposal which could make daily liquidity loan mutual funds all but extinct.

    since i dabble in CEFs, i choose those that have discretion to allocate to both. i trust that managers will pick up the relative value. BGH, which suffered mightily due to its energy exposure is on the rebound, so is HNW for example and more single asset thingies such as JRO/JQC/JSD/VTA/VVR, etc.
  • Wow! I just took a look at NHMAX it has matched its previous all time high of 17.51

    http://finance.yahoo.com/echarts?s=NHMAX+Interactive#{"range":"5y","allowChartStacking":true}
  • fundalarm said:

    BGH, which suffered mightily due to its energy exposure is on the rebound, so is HNW for example and more single asset thingies such as JRO/JQC/JSD/VTA/VVR, etc.

    Good cef ideas; thanks, FA. Haven't made many adjustments lately, still putting along with munis that have slowed but just won't quit yet --but feeling like it's time to branch out a bit.
  • @AndyJ: these are in no way substitutes for munis. Their 8%+ distribution yield is taxed as ordinary income. Junkster and I just took this muni thread to the side a bit, sorry.
  • edited April 2016
    Here are some Muni C E F's with current Premium/
    Discounts to nav ( Pricey ?)

    NUW + 2.34

    NMZ +1.29

    OIA -0.26

    NBH +1.04
    Good spots for further research.
    Nuveen Tax-Exempt Municipal Debt - National Municipals
    http://www.nuveen.com/CEF/DailyPricingTaxExempt.aspx
    Source for C E F reseach
    http://www.cefconnect.com
    I have OIA on my watch list and own @fundalarm mentioned BGH
    From Bill Gross
    In a world of barely visible interest rates, it pays to borrow, rather than invest, Bill Gross tells Barron's. One way to do that is are closed-end funds which borrow and lever assets 35-50%, and his fund,:JUCAX, has 8-9% of its money in CEFs trading at a discount to NAV. Two favorites are the Nuveen Preferred Income Opportunities fund (NYSE:JPC) and the Duff & Phelps Global Utility Income fund (NYSE:DPG). (These two are not muni's)
    http://seekingalpha.com/news/3172321-bill-gross-let-others-borrow

    Mr Gundlach has also mentioned C E F's in recent commentaries as viable income producers in the current investment environment.

    Speaking of Mr Gundlach,maybe he'll be clear on his outlook for High Yield and other financial assets in the coming week.Usually fun to listen to in this format.

    image
    Asset Allocation Webcast

    Please join us for a live webcast titled "Asset Allocation Webcast" hosted by:

    Jeffrey Gundlach

    Mr. Gundlach will be discussing the economy, the markets and his outlook for what he believes may be the best investment strategies and sector allocations for the DoubleLine Core Fixed Income Fund (DBLFX/DLFNX) and Flexible Income Fund (DFLEX/DLINX).

    Tuesday, April 12, 2016

    1:15 pm PT/4:15 pm ET /3:15 CT
    Register here
    https://event.webcasts.com/starthere.jsp?ei=1085514
  • edited April 2016
    fundalarm said:

    @AndyJ: these are in no way substitutes for munis. Their 8%+ distribution yield is taxed as ordinary income. Junkster and I just took this muni thread to the side a bit, sorry.

    Not at all, FA - I completely understand all that. The point was that I'd never considered cef's w/ large stakes in bank loans. The "branching out" comment was about getting back into the taxable realm on a limited basis. My risk assets are almost entirely equities right now.
  • @DanHardy OK, I got it--- supply of new issue munis increases in the Spring and tends to be a negative on muni prices (thereby possibly presenting a better buying opportunity on the pullback). Also, munis have their own yield curve; and with things the way they are now, if interest rates were to rise, the long end and not the short end is the area less likely to be affected (the opposite of Treasuries).

    http://blogs.barrons.com/incomeinvesting/2016/04/11/tactical-opportunities-in-muni-etfs-this-spring/
    First, given the steepness of the municipal bond yield curve, he thinks Market Vectors AMT-Free Interm Muni (ITM) makes sense since investors will benefit from higher yields in this steep part of the yield curve. But if the Federal Reserve starts to seem like it will raise interest rates again soon, the municipal yield curve is likely to flatten. At that point, he thinks it will make sense for investors to move out to a longer duration ETF like Market Vectors AMT-Free Long Muni (MLN).
    http://www.vaneck.com/blogs/muni-nation/utility-and-sensibility-april-2016/
    It is important to understand that seasonal shifts in supply and changes in the yield curve can impact a municipal bond’s total return and present investors with tactical opportunities. For the first quarter, according to Barclay’s, their Municipal Bond Index returned a positive 1.67%. Taking into consideration the seasonal supply/demand trends that have prevailed during the second quarter for the last 15 years suggest that favorable entry points may potentially become available.

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