Blog

Whataremunicipalbonds?

“Bondsareboringandbondssoldbystatesandlocalitiesareboringandalsocomplicated,”ishowtheFT’sJoeMysakdescribeswhatwas,untilthemonolinecrisis,anobscureinvestmentonlyofinteresttowealthyUSinvestorslookingforthesolidreturnsandtax-freeyieldsofferedonmunicipalbonds,or“munis”。

TheseareissuedbyUSstates,citiesandcountygovernmentstoraisemoneytospendonpublicinfrastructureprojects,includingroadimprovement,schoolandhospitalrefurbishments,andsportsfacilities。

TheattractionfromaUSinvestor’sperspectiveisthat,unlikeincomefromTreasuriesorcorporatebonds,theinterestonmunisispaidfreeofincometax。

It’salsofairlylowrisk–publicauthoritiesareultimatelybackedbythetaxpayerand,accordingtoJamesColbyatVanEck,thedefaultrateisbelow1%。

Sowhydobondinsurersgetinvolvedatall,giventhatmostissuersareunlikelytogooutofbusiness?

Buyingatopcreditscore

Itcomesdowntothesizeofthemarket。

AstheWallStreetJournalnotes,thereare“literallythousandsofissuers,someofwhomrarelyselldebt”。

BybuyingbondinsurancefromafirmsuchasAmbac,MBIA,orthenewBerkshireHathawayvehicle,issuersgettwomainbenefits。

Firstly,bypayingapremiumtoabondinsurerwitha“triple-A”creditrating,theissuer–whomaynotenjoysuchahighratingthemselves–canissuetheunderwrittenmunisastriple-Adebt。

Thismakesthebondcheapertoissue,thankstoitslowdefaultrisk。

Thesecondbenefitisthatinvestorsbuyingbondsfromlesser-knownpublicbodieswithapatchyhistoryofdebtissuancefindthemeasiertopriceoncetheyhavebondinsurerbacking。

Thisinturnmakesthebondseasiertosell。

Asaresult,theWallStreetJournalestimatesthat“morethanhalfofallthemunisbroughttomarketrecentlycamewithinsurance”。

Yetdespitethisfact,therehasbeenahugesell-offofmunicipalbonds,whichhasseenyields(normallyonlyaround80%-90%ofthoseavailableonsimilarlysafeUSTreasuries,thankstotheincometaxexemptionsenjoyedbymunis)climbto100%ormore。

Howbondinsurerswentbad

Whythesell-off?

Because,asJohnBirgernotesinFortune,thelistedbondinsurersdidn’tsticktomuni-bondunderwriting。

Temptedbythejuicierfeesavailableforunderwritingfarriskiercorporatedebtinstruments,suchasCDOs(oftenbackedbysubprimemortgages),theyquicklybecameembroiledin“theWallStreetdeathtrap”。

Assubprimedebtcollapsesinvalue,thebondinsurershavetakensomebighits。

Ambacrecentlysawamassive$3。

5bndentinprofitsafterlosingitsAAA-creditratingfromcreditratingsagencyFitchinmid-January。

Here’stherubformunibonds–ifthebondinsurersgetdowngraded,thensodoallthebondstheyhaveguaranteed。

Andit’sthatprospectthathasseenmunibondsbeingdumpedacrosstheboardasnervousinvestorsbailoutofeverythingwithanyconnectiontosubprimedebt。

HowtofollowBuffett

ButMichaelPollockintheWallStreetJournalspotsa“buyingopportunity”。

Thesell-offmeansthat“insuredbondshavebeenmarkeddowntopricelevelswheretheywouldtradeiftheywereuninsured”。

Thenthere’sthe“minisculedefaultrate”onmostmunis,whichisonlyaround0。

06%–evenonthelowest-ratedbonds–mainlybecausethe“generalobligation”bondsthatmakeupmostofthemarketarebackedbythefulltaxingauthorityoftheissuer。

ChuckinthefactthatfurthercutsininterestratesfromtheFederalReservewillbegoodforbondpricesgenerallyandsuddenlyanunlovedsectorlookstempting。

“Ifyoucanstomachsomevolatilityintheshortterm,you’llmakesomemoney,”saysfundmanagerGeoffreySchechterofMFS。

Butwhattobuy?

MunibondscanbedifficultandexpensiveforprivateinvestorstobuyindividuallyandthetaxbenefitsarenormallylimitedtoUSinvestors。

Soabetterbetistogoforafund。

Thecheapestrouteisviaanexchange-tradedfund,suchastheBarclaysiSharesSPMunicipalBonds(AMEX:MUB),withanexpenseratioofjust0。

25%。

Orbuyamanagedmunicipalbondsfund,suchasLeggMasonPartnersManagedMunicipals(SHMMX),whichcarriesathree-starratingwith“belowaverage”riskfromMorningstar。

Theexpenseratioisacomparativelyinexpensive0。


狗万滚球靠谱么_狗万app登录不上_狗万体育账号