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Author: lsmr409 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: recent Muni Bond fund performance Date: 11/16/2010 12:02 AM
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Greetings,

My dad (in his late 70's) has for a while been invested in an Eaton Vance Muni Bond fund -- EIM. In recent weeks, the fund has been tanking. I am by no means an expert in bonds or bond funds, so thought I would ask the board why this recent severe dip might be occurring. What are the factors behind it? Is this a time to get out, or to hold fast and wait for a rebound?

Thanks so much for any feedback!
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Author: voiceinthedin Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 31849 of 35367
Subject: Re: recent Muni Bond fund performance Date: 11/16/2010 12:27 AM
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http://stockcharts.com/charts/gallery.html?tbt

basically yields hit a low.....bonds hit a high.....

and now that is reversing.....

please no refudiating this.......but if you wish to be fully brained you can repudiate it.....LOL

Dave

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Author: lsmr409 Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 31851 of 35367
Subject: Re: recent Muni Bond fund performance Date: 11/16/2010 3:11 AM
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Dave,

Thanks for your reply.

I assume from your comments and the graphics that you linked to that the connection between 20+ year Treasury's and Municipal bonds is quite close?

Todd

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Author: jackcrow Big gold star, 5000 posts Feste Award Nominee! Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 31852 of 35367
Subject: Re: recent Muni Bond fund performance Date: 11/16/2010 11:34 AM
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Ismr,

Which State fund is he actually in, there are several EIM?? funds or is it the closed end fund? Muni funds, because they are often tied to specific States may have State driven reasons for their price moves. CEFs often behave slightly differently then their open ended siblings; there may be something specific to their holdings or a large holders activity.

In the macro view we are starting to see a rolling over of interest rates. Is this the beginning of a larger trend or a short term correction? I don't think anyone actually knows at this point. Both camps are going to have reasonable arguments and one of them will eventually shout their brilliance. By the time they do declare victory it will be of little value to us.

I noticed on their website that they are hosting a conference call tomorrow. You may want to listen in on that. Also take the time to download all the pdf's available for the fund and read up a bit. After educating yourself a bit don't hesitate to call or email them.

jack

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Author: pauleckler Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 31853 of 35367
Subject: Re: recent Muni Bond fund performance Date: 11/16/2010 12:29 PM
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I wonder if the Ambak bankruptcy could be part of the correction. They are insurers of many insured muni bonds. The bk must make people aware that their insurance may be worthless. Hence, many AAA bonds now must be rerated and repriced.

You can also consider the effects of QE2. If the Federal Reserve is buying up long bonds to drive down long interest rates, you would think munibonds would rise in value. So are investors betting that QE2 will fail, or is it that international investors are frightened by the prospects of QE2 and its implications and are now unloading their dollar holdings?

This could also be a weak dollar response. International investors are likely to dump dollar denominated bonds if they think US policy is to weaken (rather than defend) the value of the dollar.

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Author: Prophet43M One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 31854 of 35367
Subject: Re: recent Muni Bond fund performance Date: 11/16/2010 12:53 PM
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Paul & Others:

I don't think the Ambak bankruptcy has anything to do with the preciptious decline in CEF muni bond funds. The ratings of muni bonds have long since reflected the "new" much lower ratings of the insurers (Ambac, MBIA/NATL, FGIC, and numerous other smaller players).

As best I can tell, the decline more or less spans all of muni land and I have to believe it has more to do with QE2 to and the many responses to it.

I own one muni bond fund (the only bond fund I own). It has dropped more than 13% over the last five trading days. It is a Van Kampen (now owned by PIMCO) national muni fund. All of Van Kampens national muni funds have experienced similar declines. Symbols: VKI, VMO, VKQ, VKL, VIM, VGM.

The linked Seeking Alpha article briefly mentions the carnage in muni fund land.

http://seekingalpha.com/article/237002-the-muni-bond-rout-an...

These funds all use leverage...so the fall will of course be more preciptious. Redemptions will require sales of some of the underlying holdings which will almost certainly depress NAV which will probably motivate others to unload their positions. Leverage is fun on the way up.....not so much on the way down. I bought the muni fund in December 2008 when I wanted some exposure but did not feel educated enough to buy individual munis...that situation has changed. After I study the situation a bit more, I'll make a decision to sell, hold, or buy more. I'm leaning towards taking my rather large (remaining) profits and stock pile the funds for purchase of individual munis as I see good value.

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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: 31855 of 35367
Subject: Re: recent Muni Bond fund performance Date: 11/16/2010 3:21 PM
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What you are seeing is exactly the reason that I hate bond funds with a passion. If you own individual bonds, there is no leverage unless you buy the bonds on margin. You know your money will be returned to you, unless there is a default, on a certain date. You are promised an interest coupon usually twice a year in the meantime. You may or may not grant the issuer the right to call the bond early. The bond will sit in your account and there will be no management fee in the meantime.

Now the government must roll out the printing presses, and devaluation of the US dollar is inevitable. Perhaps the new congress will do something about the deficit, which has more than gotten out of hand.

My opinion, admittedly prejudiced against bond funds, would be to look for individual muni bonds issued by your dad's state, and sell shares as needed to pay for them. Some states now are in really sad financial shape, and your dad might do better to choose a good corporate bond or bonds and pay the tax.

Please take this in the context that I do not buy bond funds, so there is an admitted bias here. Yes, my bonds are down also--but I bought them at discounts so there will be capital gains when they mature no matter what convolutions the market may go through during the life of the bonds.

Best wises, Chris

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Author: Prophet43M One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 31857 of 35367
Subject: Re: recent Muni Bond fund performance Date: 11/16/2010 11:24 PM
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I have to post a correction to my own post. I guess that's what I get for reading message boards and rushing to type up a post on company time when I should have been working. These darn TMF message boards are a terrible distraction and should be shut down :-)

In my prior post, I said.....

"These funds all use leverage...so the fall will of course be more preciptious. Redemptions will require sales of some of the underlying holdings which will almost certainly depress NAV which will probably motivate others to unload their positions. Leverage is fun on the way up.....not so much on the way down.

I believe the above statements are correct except for the fact that all of the PIMCO/Van Kampen national muni bond tickers listed (including the one I own) are CEF's, and therefore by definition there are no redemptions. Sorry for the temporary mental lapse.

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