UnThreaded | Threaded | Whole Thread (6) | Ignore Thread Prev | Next
Author: henrypeter Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 35367  
Subject: Re: PIF: Muni bond fund Date: 1/5/2005 1:22 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
I don't trade my bonds. Once I own a bond, I will hold it until it matures or is called away. Called away happens more frequently in a falling interest rate environment, which is what we've been through I suspect there will be a lot fewer calls in the next year or so, although some of my bonds had a 5-year call protection that is expiring.

Chris,

Once again, thank you for your comments.

The main issue that remains unclear is how a fund like PIF can invest in AAA credit rated muni bonds and give a yield as high as 5.3% (and a higher effective pre-tax yield, even when considering, as you point out, that a sizeable portion of their fund may be subject to AMT and some state taxes). The higher the credit rating, the lower the expected yield should be. Since PIF invests in AAA bonds, I would expect the yield to be quite a bit lower.

In the very low interest rate environment of the past few years, any quality bond it seems to me would be trading at a significant premium over par. Thus, since you would buy individual bonds, and hold them to maturity, it seems you would have paid a premium which causes the final net yield on the bonds to be a lot lower than the actual coupon interest.

So, what AAA muni bonds does PIF invest in that produces such high yields in the current interest rate environment? And what high credit rated bonds do you buy that give you an even higher yield, even after considering the premium you must be paying at the time you buy the bond?Is there a place where such great investment opportunities are listed?

As for PIF, I suppose one can get a copy of their prosepectus to see the list of the bonds in their fund. I haven't done that yet, although I am quite curious how they swing such a nice trick of owning AAA muni bonds that have a yield substantially higher than current market interest rates. If 10 year T-bills have yields about 4.3%, how can AAA muni bonds beat that, and how can you beat that, as you seem to be saying that you do? It seems the premium when purchasing such bonds would kill the yield.

I have an open mind about all this, still learning, but somehow these yield numbers do not make sense to me.. ie.. that is, ... the yield that PIF indcates their fund provides, and the fact that you claim to be able to do even better buying individual bonds. I'd be glad to get 7-8% on a AAA bond, if I new where to get them.

Thanks,
Henry


Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Print the post  
UnThreaded | Threaded | Whole Thread (6) | Ignore Thread Prev | Next

Announcements

Pencils of Promise - Back to School Drive
"Pencils of Promise works with communities across the globe to build schools and create programs that provide education opportunities for children."
Managing Your Wealth
Our own TMFHockeypop from Rule Your Retirement fame on the TV show Managing Your Wealth.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Post of the Day:
Macro Economics

Should You Be an Index Investor?
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
Community Home
Speak Your Mind, Start Your Blog, Rate Your Stocks

Community Team Fools - who are those TMF's?
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and "#1 Media Company to Work For" (BusinessInsider 2011)! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.
Advertisement