Income Investor Perspectives

Independent municipal bond market insights for advisors

Month: April, 2016

Monday Muni Filter

I love my Bose noise cancelling headphones…they do a great job of filering out extraneous noise so I can concentrate of what I want to be hearing. While my headphones don’t work with ideas, the idea of cancelling out the noise is a helpful one. Here are some ideas I’d like to share with you that I think can get lost amindst the noise of this week but shouldn’t.

As usual, this week will be chock full of news and distractions: it’s the last week of the month, short-term UST yields have moved higher (a little), the FOMC meets this week, there are more primaries, we’ll probably hear more about Puerto Rico and equity earnings season continues with over 1,200 pubic companies announcing earnings this week (according to Zacks).

If you’re active in the muni bond market–either via bonds, mutual funds, ETFs or SMAs, it can be helpful to take a step back from the commotion and filter out the noise.

What do you really need to know to start your week? Here are a couple of items to start with.

RISKS: Bond investors are familiar with how to evaluate and manage credit risk, interest rate risk, issuer concentration risk, reinvestment risk, etc. But I have long argued that the last years have seen an increase in two sources of risk that are very difficult for investors to measure or manage: political risk and liquidity risk.

If you missed it, you should be sure to see this story from The New York Times, Municipal Bond Defaults Shake Up a Once-Sedate Market.

[The article quotes John Bonnell, a portfolio manager at USAA] that investors also needed to bear in mind political changes in the municipalities themselves.

“When it comes to the willingness to pay part, the officials you bought that bond from might be totally different 10 years from now,” he said. “It’s hard to predict with a 30-year bond.”

Liquidity risks: in the muni market, liquidity and tradeablity can vary between bonds and are subject to chaneg with market conditions. Be sure you’ve read my article on the topic here.

Seeking Alpha ran an article last week with my explanation of the upcoming Hundred Billion Dollar Muni Summer redemption season.

And finally, here is this week’s market context for you to print out and hang next to your computer.

Do you need something else? Let me know! Check my “About” page to learn how else I may be able to help you.

Have a great week,



Your Reading Assignment

Screen Shot 2016-04-18 at 6.36.05 AMThe weather is turning beautiful, and it can be a distraction. So to start your week, here’s a quick checklist to be sure that you are ready for your client and prospects conversations:

Summer Redemeption Season: $100 billion in maturing and called munis could create a headache for advisors and clients–or it could create an opportunity. This article explains what’s going to be happening in the next couple of months.

Munis: Using Muni ETFs to Complement a Portfolio of Bonds. “Hey! You got peanut butter on my chocolate!” Did you ever see the commercial for Reese’s Peanut Butter Cups, for people who didn’t realize that peanut butter could go with chocolate? Today, many advisors and investors don’t realize that they can combine ETFs with a portfolio of munis. Read my guest post at the Van Eck Muni Nation blog for ideas about how to complement an existing portfolio.

The Guide to How To Pick The Right Muni Bond ETF. What are the three “don’ts” you need to be aware of? Do you know how selecting a muni ETF is different from selecting an individual municipal bond? Or how it is different from selecting an equity ETF?  More importantly, can you explain the differences to a client or prospect? Do youself a favor and read this for some insight about how to to evaluate duration, dividends, yield to maturity, taxable equivalent yield and credit risk when selecting a muni ETF.

Finally, sorry for repeating myself, but have you printed this out and hung it next to your computer?

If all his isn’t enough to help you, check my “About” page to learn how else I may be able to help you.

Have a great week,




If Time is Money…

If time is money, then what does duration tell us?

For fixed income investors, duration tells us about both–that’s why I calculate the duration for the spots on the muni yield curve. This week’s update has been posted.

Click here to see how much duration risk there is in the 5 year spots of the curve. And, have you been wondering just how cheap munis are to Treasurys? It’s there too.

If you need a refresher on what exactly duration calculates, and the differences between Macaulay Duration and Modified Duration, see my recent article on Just this past week, I read in a major financial publication an article that conflated Macaulay and Modified. Mixing the two will just undermine your credibility.

I update Muni Market Yields in Context after the end of each week.

Have a great week!


Muni ETFs & a Muni Bond Portfolio

Please see my guest post on the Van Eck Muni Nation blog:

Using Muni ETFs to Complement a Portfolio of Bonds

For municipal bond investors, life has gotten more difficult — not less:

  • Persistent low rates have driven some investors to take on more concentrated duration or credit risk than they may be comfortable with (or should be comfortable with) or hold fewer bonds.
  • Lingering concerns about creditworthiness have been compounded in some cases by an increase in political risk and as a result, an issuer may have the ability to pay its debt but may be less willing to do so.
  • Drastically reduced secondary market liquidity has made it more difficult (and expensive) to be nimble. In order to protect themselves should the need arise to sell bonds prior to maturity, some investors have restricted themselves to only the largest and most liquid bonds available, thereby limiting their ability to pursue incremental yield opportunities.
  • The dynamics of muni bond supply and demand are subject to seasonal imbalances, and this year the supply of new issue bonds is down over 8% versus 2015, while the upcoming “Summer Redemption Season” is expected to add over $100 billion in redeemed municipal bond principal to reinvestment demand, according to Bloomberg data.

Given these challenges, investors may wish to consider whether using muni bond ETFs as a complement to an existing portfolio may be easier and more efficient than using individual bonds as a way of maintaining an appropriate asset allocation mix and risk profile.

Because muni ETFs are managed to maintain a constant duration, the decision to reinvest can be made when it makes the most sense for each investor’s goals—not just because bonds are maturing. For example….

CLICK HERE to keep reading

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