Muni bonds - yeah or nay?

Via a mutual fund, I would wait until 3Q 2010 and see where interest rates / NYS budget is. As interest rates rise, NAV of fund will decrease. If you very slowly dollar cost average now you can limit you downside while getting some interest.

If you plan on holding to maturity, actual bonds may make sense, but they are also exposed to price declines if you need to sell, are not diversified and have high transaction costs.

Better bet is to invest in an ultra short national muni for the next year and then see what happens

I wouldn't invest in long term right now - you know that interest rates have to go up in the not too distant future. Muni's are a great investment, but I wouldn't invest in any bond on a long term basis for now.

It all depends on how much $ you have. What are we talking about?

ah---the broker speaketh.

Hahaaahhah. It's just my opinion. Nothing more

But the $ amount does make a diff. Under a mil, you're better off in a fund.

I say yeah. I bought NY munis yielding 6% in the sell-off late last year and am adding more at 5% yields.

Just because short rates will eventually go up does not mean long muni rates will too.

Stay away from hospital and stadium bonds. I bought NYC GOs, TBTA bonds, MTA fare-backed bonds, and NYC Muni Water Auth bonds. I am laddering out the maturities from 2018 to 2040.

There is little to no chance any of them will default, IMHO.

The best way to invest in munis is through a closed end fund. This way you are investing in multiple tax-free bonds. If any were to fail you would be protected by the other bonds. The closed end funds are traded as stocks which makes it very inexpensive if you need to buy or sell. Big names in closed end muni are Vankempen, Blackrock, Putnam and Nuveen. I am sure there are others. Interest rates do affect the returns but since these funds will buy and sell as time goes on, the return will follow the market in time. Two of my favorites for New York are NUN and NVN. These are both insured funds and they rating on the funds are at least AA. And just for the naysayers out there, I am not a broker and I have been investing in these type of funds for almost 20 years and derive considerable income year after year. I let my money work for me.

The best way to invest in munis is by buying at the "IPO" and laddering. You get the best prices and absent default will get your principal back(someting that does not happen in a fund)

Riversider is correct, best way is to buy at the initial offering at par, which is how I bought most of my bonds. The issuer pays the underwriting discount, not you. Any bank or broker can get you NY bonds, as they are in the market often, and the underwriters are directed to favor retail investors by the issuers.

I also bought NY muni closed-end funds, but when they were trading at big discounts to NAV earlier this year (many are up 50%). I disagree they are the best way to own munis, they can trade to discounts/premiums, they often use leverage (which hurts when rates go up), they have fees you do not pay when you own bonds directly. And just because they are listed does not mean you have better liquidity if you won more than a little, as the bid/ask spreads can be wide and the bids thin.

I own BNY, ENX, VTN.

Thanks.

I agree with modern. If you buy a closed end, it better be at a pretty big discount to NAV. Nothing beats individuals. 5% interest for 30 years with zero expenses? The TEY (taxable equivalent yield) cannot be beat.

Agree - the recommendation from people in the biz was overwhelming to buy individual munis (I screwed up by buying RMUNX and selling close to the bottom last year). And to buy ones tied to specific revenue stream as opposed to general obligation munis. Ditto on the laddering.

My take... whatever couple points you get there is not worth it. You generally buy bonds for security. It might be a long shot, but its a very real threat of default (cities in California already have).

Yeah, if it's part of a diversified portfolio.

Hence, project-based munis (such as sewers). I wouldn't touch gen. oblig. bonds.

The problem with muni's right now is that they are so expensive. A common laddered portfolio of pre re's has seen huge capital appreciation this year, virtually unheard of in the muni world. The Blackrock closed end fund (NUN) mentioned above is up almost 100% over the last year! Investors looking for safe yields, who are not happy with the 3 bps their money funds have flocked into muni's and paid up significantly this year. Given the huge issues municipalities are facing and the anticipation that in next couple years the Fed will have to raise rates significantly, muni's just don't look all that attractive, hopefully safe but not attractive.. Unfortunately, there are not may alternatives...

A few things I would do:
- always ladder, but keep the maturities short
- don't buy closed end funds if security of principal is your number one concern. They are frequently levered and easily traded. These two things make them far more volitile than the overall muni market. if you want a little risk, they might be alright, but the high quality ones are trading a at premium to NAV, so not good from a value perspective.
- stay away from high yield muni funds like oppenheimer rochester unless you have a healthy appetite for risk and volitility.

Hence, project-based munis (such as sewers). I wouldn't touch gen. oblig. bonds.

Overa G.O. backed by the full taxing powers of the municipality(Scarsdale, NYC, NYS)