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Author: Ticktocktoo Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 35400  
Subject: Municipal Bonds Date: 9/19/2006 6:09 PM
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Sorry to beat an apparent dead horse, but I thought I would get some comments regarding my first post.

Am I the only retail customer buying muni bonds? Granted I am in a high tax state, but in the 28% tax bracket a 4.00% muni is better than any CD which would have to be yielding 6.05%.

Yes a 4.00% is getting hard to find again and you have to be out over 10 years now. Even in the shorter end you can beat CDs and agency paper.
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Author: DeltaOne81 Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 18334 of 35400
Subject: Re: Municipal Bonds Date: 9/19/2006 7:29 PM
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4% in the 28% bracket is 4%/.72 is 5.56%. Much more evenly competitive with CDs that go that far out. Not the 6% your mention.

To get to ~6% you'd need to be in a 34% bracket total. Which may certainly be possible, but is definitely higher than average.

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Author: Crosenfield Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 18335 of 35400
Subject: Re: Municipal Bonds Date: 9/19/2006 8:19 PM
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I'm a retail customer looking for a muni bond in the under 10 year maturity, selling at a discount. Not easy. I'll bide my time.
Best wishes, Chris

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Author: blearynet Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 18336 of 35400
Subject: Re: Municipal Bonds Date: 9/19/2006 8:25 PM
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Me too, and it has to be in California. Sigh.

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Author: Lokicious Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 18337 of 35400
Subject: Re: Municipal Bonds Date: 9/19/2006 8:31 PM
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Yes a 4.00% is getting hard to find again and you have to be out over 10 years now.

Do you really want to lock that in for that long? Have you factored in commission and mark-up (likely to be high with muni's)?

And muni's do have risk. Historically, they have been less risky than corporates with the same maturities and ratings, but history pales in comparision to analysis. A lock of states and municipalities are in financial trouble, and the pension.health care elephant is in the room.

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Author: Ticktocktoo Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 18338 of 35400
Subject: Re: Municipal Bonds Date: 9/19/2006 8:44 PM
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DeltaOne81 wrote:

"4% in the 28% bracket is 4%/.72 is 5.56%. Much more evenly competitive with CDs that go that far out. Not the 6% your mention.

To get to ~6% you'd need to be in a 34% bracket total. Which may certainly be possible, but is definitely higher than average."

You are correct if you do not include state tax. In my case without local tax, the state tax would be 6.85% and the federal would be 28.0%.
Thus the approximately 34% that you calculated.

I think the munis will beat the current CD crop over a wide range of maturities for folks in the higher tax brackets and from states with higher tax bills on interest. Of course the munis would also have to be in-state to gain the maxium tax relief for particular states.

Bottom line for my situation, I would need a CD rate > than 5.00% to beat investment grade insured NY muni yielding slightly more than 3.30%. Very easy to accomplish.

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Author: Ticktocktoo Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 18339 of 35400
Subject: Re: Municipal Bonds Date: 9/19/2006 8:55 PM
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Chris wrote:

"I'm a retail customer looking for a muni bond in the under 10 year maturity, selling at a discount."

Why are you looking specifically for a bond selling below par?

I take it you mean you are waiting for interest rates to start climbing and the curve to steepen.

Thanks,

Ticktocktoo

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Author: jrr7 Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 18345 of 35400
Subject: Re: Municipal Bonds Date: 9/20/2006 9:47 AM
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To get to ~6% you'd need to be in a 34% bracket total.


I can easily think of several states where most middleclass people are in the 6% tax bracket.

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Author: Lokicious Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 18346 of 35400
Subject: Re: Municipal Bonds Date: 9/20/2006 11:18 AM
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It isn't news that people in upper income brackets, especially with high state taxes, can theoretically get better after-tax yields with munis, especially state specific munis.

Munis historically have been appropriate for the top 2-3 brackets, depending on state issues, and perhaps even for those in what is currently the 25% bracket (the broad middle bracket) under especially high state taxes. The after-tax returns should be comperable to high investment grade corporates and better than Treasuries or even CDs. (Currently 3.88% for AAA 10 year munis, 5.58% for AAA Financials, according to Bloomberg, or about a 30.5% tax difference.)

The problem is getting munis without the middle-men taking such a huge slice you usually don't get even close to the stated yield. Anything less than $50,000 you'll probably be lucky with .5% costs (same with existing corporates, but munis as typically worse on the mark-ups).



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Author: Ticktocktoo Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 18350 of 35400
Subject: Re: Municipal Bonds Date: 9/20/2006 2:21 PM
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Lokicious eloquently stated:

"It isn't news that people in upper income brackets, especially with high state taxes, can theoretically get better after-tax yields with munis, especially state specific munis.

Munis historically have been appropriate for the top 2-3 brackets, depending on state issues, and perhaps even for those in what is currently the 25% bracket (the broad middle bracket) under especially high state taxes. The after-tax returns should be comperable to high investment grade corporates and better than Treasuries or even CDs. (Currently 3.88% for AAA 10 year munis, 5.58% for AAA Financials, according to Bloomberg, or about a 30.5% tax difference.)

The problem is getting munis without the middle-men taking such a huge slice you usually don't get even close to the stated yield. Anything less than $50,000 you'll probably be lucky with .5% costs (same with existing corporates, but munis as typically worse on the mark-ups)."


This is exactly the problem I posed in my original post. How can I as a retail customer buying larger pieces insure that I am getting the best prices? I would love to hear about particular strategies or experiences of other retail customers. Is .5% markup really the best obtainable? Can offerings on BONDDESK ever be a good buy?

I appreciate the fact that my "problem" is one that all individual investors would be happy to deal with. I think the point is that no matter what an individual's tax bracket, investment plans must be tailored to the specific circumstances.

We all deserve to maximize our hard earned money. As retail customers only when we educate each other can we insure that we all benefit.

Thanks again. I am new to this community and certainly not the most elongant and/or concise contributor


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Author: Sonnet Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 18354 of 35400
Subject: Re: Municipal Bonds Date: 9/20/2006 2:49 PM
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How about a fund? If you are in California and earn 80-100k a year, wouldnt this fund make sense?

Vanguard California Intermediate-Term Tax-Exempt Fund Investor Shares (VCAIX)

https://flagship.vanguard.com/VGApp/hnw/FundsHoldings?FundId=0100&FundIntExt=INT

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Author: Lokicious Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 18355 of 35400
Subject: Re: Municipal Bonds Date: 9/20/2006 3:28 PM
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This is exactly the problem I posed in my original post. How can I as a retail customer buying larger pieces insure that I am getting the best prices?

I think the reason you didn't get a good response the first time is because no one has a good response. If someone has found somewhere to get a good deal with munis, I haven't heard about it. Really wealth clients (folks way of 28% bracket), who are the main buyers of munis, along with funds (muni funds have interest rate risk problems, just like other funds), usually have special relationships with brokers.

A few years ago, I tried to get munis my city had just issues directly from city hall. No go. So dealer, with specialaccess, had already bought them up and was brokering them to select brokers to broker them to select clients. There was an attempt a few years ago by some brave municipalities to sell directly to retail customers. The brokers put an end to that.

We are starting to see some corporates being offered directly, without the intervention of big investment banks. I can get some for no commission at Vanguard. It's not a wide range and the yields aren't exciting, but there is something. I see a struggle, now that the T-direct model is out there, over easy access via the internet. My city could have offered a higher yield and gotten more money at the same time, without the middle men. We know what discount brokers have done to full service stock brokers.

But for now, munis seem to be controlled by the middle men, which basically means what ought to be a great option for people like you (and me, before higher retirement contributions and tax cuts made munis an unlikely choice) is hard to come by at a fee structure that doesn't eliminate the advantage.

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Author: Crosenfield Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 18358 of 35400
Subject: Re: Municipal Bonds Date: 9/20/2006 7:01 PM
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When the bond matures, the issuer will pay par. If I buy at a premium, I have a built-in capital loss. A small discount to par will translate into a capital gain.
Today I bought a bond, issued by my state, at 99.4 cents on the dollar. It is callable. The discount was small, $60 on the $10000 bond. If they call it early, I get that little bit of extra early. If I'd paid 101 cents on the dollar, and they called it (more likely with premium bonds because the coupon is probably a bit higher) then the buyer doesn't get all the interest expected and the premium is lost sooner. Figuring how these factors interact can be touchy. I save myself a lot of figuring by simply not paying a premium. With an individual bond you can keep track of such things. With a fund you cannot. Another reason not to buy funds, although the main one is that they don't mature (except term trusts, but that is a different matter). The individual bond will be worth par at maturity. With a fund, it may never return to the price you paid.
Best wishes, Chris

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Author: AcmeFool Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 18391 of 35400
Subject: Re: Municipal Bonds Date: 9/22/2006 11:38 PM
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Bottom line for my situation, I would need a CD rate > than 5.00% to beat investment grade insured NY muni yielding slightly more than 3.30%. Very easy to accomplish.

Why would you be comparing CDs at 5% when it is easy to get much higher rates. PenFed has 6% CDs for 3-5 year maturities...

Acme

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