Municipal Bond Funds

[Libertarian666]

I know this is an old thread, but anyone who counts on governments (especially governments without central banks) to honor their promises is very naive.

[dualstow]

I know this is an old thread, but anyone who counts on governments (especially governments without central banks) to honor their promises is very naive.

That's a nice quote.
This is the part where I smile, deposit my monthly tax-free check and move on.

[Pointedstick]

I know this is an old thread, but anyone who counts on governments (especially governments without central banks) to honor their promises is very naive.

That's a nice quote.
This is the part where I smile, deposit my monthly tax-free check and move on.

Which munis have you invested in, out of curiosity?

[dualstow]

Mostly VPAIX (see page 1), which is a Pennsylvania muni fund from Vanguard.

[foglifter]

Does anyone here invest in multistate muni funds? I was wondering about taxation of the income received by the fund from states other than my state of residence. I asked Fidelity rep about FLTMX and they confirmed that I shouldn't worry about any taxes. 

[Pointedstick]

The federal government may not care, but might your state government?

[foglifter]

The federal government may not care, but might your state government?

That's the concern I had. Fidelity rep did take time to consult with the back office and put me on a phone with them. They only do the federal level tax reporting. But at the end of the day Fido may not be aware of the state tax code nuances...

[Ad Orientem]

Multi-state muni funds are directed more towards Federal taxes. They are of limited use if you are trying to minimize the state tax bite. That said for people who live in low tax states or who are more concerned with diversifying their holdings (i.e. they don't want all Illinois bonds) they work well.

[Pointedstick]

That said for people who live in low tax states or who are more concerned with diversifying their holdings (i.e. they don't want all Illinois bonds) they work well.

Gee, I can't imagine who wouldn't want those... 

[Bean]

You guys not worried about Detriot and California's effect on this market?  I know MUB is impacted to some degree and that is a pretty strong muni proxy.

Disclosure: I own MUB, but that was because some money was burning a hole in my pocket and fit well into my play income portfolio.

[Ad Orientem]

I assumed we were talking about mainstream muni bond funds like those run by Vanguard. Detroit's bonds are junk rated and most muni bond funds don't hold non-investment grade securities. California is the largest state by far so there is going to be some skew there. But I don't think it's unacceptable.

Disclaimer: I am not endorsing municipal bonds for the permanent Portfolio.

[HB Reader]

Nuveen Municipal Value Fund (NUV) is a pretty good, albeit plain vanilla, closed end municipal bond fund.  It is of medium duration, well-diversified, and doesn't use much short-term borrowing (leverage) to juice returns which is fairly rare these days.  If interest rates do rise, it should suffer less than most similar muni funds.  It is currently yielding about 4.5%.

I have used it off and on for many years in my VP and some I manage for other people.  Every once and a while you can buy it or reinvest the dividends at small discounts to NAV. 

[foglifter]

Nuveen Municipal Value Fund (NUV) is a pretty good, albeit plain vanilla, closed end municipal bond fund.  It is of medium duration, well-diversified, and doesn't use much short-term borrowing (leverage) to juice returns which is fairly rare these days.  If interest rates do rise, it should suffer less than most similar muni funds.  It is currently yielding about 4.5%.

I have used it off and on for many years in my VP and some I manage for other people.  Every once and a while you can buy it or reinvest the dividends at small discounts to NAV.

HB Reader, since NUV is a national muni fund you might have had to deal with the issue of state tax on out-of-state income. Anything you could share?

[buddtholomew]

Whats the question? The portion of bonds issued by your state in a national muni fund are not taxable on your state return. VWIUX has approximately 4% of holdings issued by the state of California. You can reduce taxes owed on muni distributions by that amount.

[foglifter]

Whats the question? The portion of bonds issued by your state in a national muni fund are not taxable on your state return. VWIUX has approximately 4% of holdings issued by the state of California. You can reduce taxes owed on muni distributions by that amount.

So what you're saying is I would have to check the brokerage statement, figure out what %% of the distributions is from California munis and report the rest (total income minus CA income) on my California tax return?

[buddtholomew]

Whats the question? The portion of bonds issued by your state in a national muni fund are not taxable on your state return. VWIUX has approximately 4% of holdings issued by the state of California. You can reduce taxes owed on muni distributions by that amount.

So what you're saying is I would have to check the brokerage statement, figure out what %% of the distributions is from California munis and report the rest (total income minus CA income) on my California tax return?

I decided that it wasnt even worth the hassle and paid the taxes. Yes, thats the calculation as I understand it.

[HB Reader]

Whats the question? The portion of bonds issued by your state in a national muni fund are not taxable on your state return. VWIUX has approximately 4% of holdings issued by the state of California. You can reduce taxes owed on muni distributions by that amount.

So what you're saying is I would have to check the brokerage statement, figure out what %% of the distributions is from California munis and report the rest (total income minus CA income) on my California tax return?

You've got the right idea, but the information is not normally on your brokerage statement.  You usually get an end of the year mailing from the fund directly (even if you hold the shares in street name at a brokerage) with the information about how much interest is from each state.  Typically, they also post that information online in a timely fashion.  Every state tax return form I've filed over the years has had a place or explanation as to how to enter that information.  Regardless, unless you are holding a very large balance in the fund the amount for your particular state is probably pretty small so it usually isn't that big of a deal, even if you mess up and end up declaring it all and paying state tax on all of it.

I hope that explanation is helpful.

[buddtholomew]

Has the Detroit bankruptcy filing persuaded anyone to sell their TE Municipal bond funds? I hold municipal bonds for the taxable portion of funds not currently invested in the PP. I assumed that these bonds were less risky than the PP, but now I am questioning my thought process. YTD they are down more than the permanent portfolio, but I suspect the max draw-down is substantially less (approximately 8%+ versus 20%+). Default risk is obviously higher in municipals than in treasuries.

[Ad Orientem]

Muni bond yields are continuing to climb...
Municipal Bonds Maturity Yield Yesterday Last Week Last Month
2yr AA 0.61 0.56 0.59 0.57
2yr AAA 0.43 0.38 0.41 0.69
2yr A 0.84 0.71 0.77 0.62
5yr AAA 1.28 1.25 1.30 1.46
5yr AA 1.35 1.49 1.19 1.39
5yr A 1.71 1.96 2.02 1.43
10yr AAA 2.70 2.72 2.76 2.65
10yr AA 2.75 2.80 2.77 2.78
10yr A 3.09 3.12 2.92 3.16
20yr AAA 3.59 3.36 3.39 3.55
20yr AA 4.62 4.59 4.42 4.42
20yr A 4.78 4.78 4.61 4.08

Edit: Sorry about the unreadable table. There appears to be no way to fix it without a lot of work. The source is here.

http://finance.yahoo.com/bonds/composite_bond_rates

[Pointedstick]

Could you put the table in CODE tags?

[rickb]

Muni bond yields are continuing to climb...

Code: Select all

Maturity 	Yield 	-1 Day 	-1 Wk 	-1 Month
2yr AA  	0.61 	0.56 	0.59 	0.57
2yr AAA 	0.43 	0.38 	0.41 	0.69
2yr A   	0.84 	0.71 	0.77 	0.62
5yr AAA 	1.28 	1.25 	1.30 	1.46
5yr AA  	1.35 	1.49 	1.19 	1.39
5yr A   	1.71 	1.96 	2.02 	1.43
10yr AAA 	2.70 	2.72 	2.76 	2.65
10yr AA 	2.75 	2.80 	2.77 	2.78
10yr A  	3.09 	3.12 	2.92 	3.16
20yr AAA 	3.59 	3.36 	3.39 	3.55
20yr AA  	4.62 	4.59 	4.42 	4.42
20yr A   	4.78 	4.78 	4.61 	4.08

Edit: Sorry about the unreadable table. There appears to be no way to fix it without a lot of work. The source is here.

http://finance.yahoo.com/bonds/composite_bond_rates

[Ad Orientem]

For those interested here is an interesting financial blog via Reuters...

Muniland