NY NY GO 5.00% 8/1/25 @ 99.306 So YTM 5.06%, and a TEY @35% tax rate of around 7.78%? I assume that is in response to perceived increased credit risk? I mean, what is the likelihood of the financial capital of the world defaulting? corp issues, AA rated, around that maturity show a ytm in the 6.5% neighborhood, and I’m not sure if Citi can decide to raise taxes if things get tight. What am I missing here?
Will those NY Go bonds reset lower in a month?
muni market is puking on itself…the auction notes are failing so there is a fear that these places will retire the floating debt and issue long term fixed rate debt thereby flooding the market with supply. i also heard there are some leverage players that are unwinding positions thus causing more problems. i have seen some numbers regarding ylds of muni debt vs tsy’s and the yield on 3yr AAA GO muni debt is 155% of tsy’s. for perpective in early 07’ the ratio was 78%. it is crazy.
It has nothing to do with the underlying credit quality of NY (or any muni issuer outside of Jefferson Co, AL’s sewer warrants). Hedge funds and arbs have been dumping their muni positions since last week. Plus, you have the potential of +$800 billion of new issuance coming to the market in the coming year from issuers taking out their floating rate debt (ars and variable). It’s starting to correct itself, but still an unbelievable situation.
Any fixed income people can tell me some bargain Cusips to buy? (i’m in CA). I’d like a 2-5 year muni with at least a 5% ytm. When I look at Fido & Merrill Lynch they tell me the coupon and the maturity but they always screw up when the last coupon was paid… I see a range of stuff from 3% to 7%. If I call them they charge me $59 and they are usually even more clueless than me.
Not sure what those guys are holding in their retail books. You should be able to find 5-year CA paper still trading at that level. Check out the following link (also reported on Bloomberg)-- shows you where munis have traded---- http://www.investinginbonds.com/MarketAtAGlance.asp?catid=32
For a 5 year I see a 3.00% ytm for a tey of 4.7% or so. If you go out 15 yr or so you hit a 5.0% ytm for a tey of 7+… I don’t know about bargain since I spent maybe 30 sec looking at these, but here are a few 5 & 15+ to glance at: 130911G46 544587KE7 54241AAR4 (what is wrong w/ long beach?) 5446447F8 “Hedge funds and arbs have been dumping their muni positions since last week. Plus, you have the potential of +$800 billion of new issuance coming to the market in the coming year from issuers taking out their floating rate debt (ars and variable). It’s starting to correct itself, but still an unbelievable situation.” I get the idea of locking in an attractive fixed to take out the floating… But why unwind existing at a price that is already bent this far by the expected increase in supply? Are they expecting them to going lower and yield higher still?
i have seen offerings this morning for some puerto rico commonwealth paper cusip 745291CY 5 3/8 cpn maturing 6/2014 at 3.35% or 113% of Tsy. the underlying municipality is rated BBB-/Ba1…this is cheap on a historic basis but i would want a little more in this environment for a BBB- rated piece of paper. another crazy thing that is happening is that prerefunded paper is trading @ >100% which makes no sense to me. if you are looking at buying paper just make sure that it cant be called in the near future bc most likely you will be paying a hefty premium for the paper and you dont want it called away in a year.
NY defaulting? Could that ever happen? It more or less did happen in 1975 (though the City said the weren’t in “default”; they had merely declared a moratorium on paying the bonds they issued. In 1975, I was sure that when I got older and wiser I would understand the difference, but I still don’t). Edit: You youngsters in NY wouldn’t believe the way that city was in the mid-70’s. It was nuts. There were sex and drugs everywhere, the Fiscal Crisis, the White House chief of staff busted for cocaine in Studio 54, the Summer of Sam, the black-out riots, and it was covered in filth and slime. Amazing difference.
They are unwinding because they are getting margin calls. Munis cheapened and treasuries strengthened which hurt several big hedge and arb funds.
Ok, thanks … “Resets” seem to be the way to go. Fixed income people please correct me: The way to potentially get a bargain is to bid on a reset muni in the 6-8% range. Before you bid, read the prospectus and make sure you understand the potential penalties (some penalties are temporarily high) & call issues. If you are successful with your bid, you buy the bonds at par. Three scenarios follow: Scenario 1: the bond resets the following week at a lower rate, at which time you can sell at par. You lose zero. Scenario 2: the bond doesn’t reset the following week and you keep receiving the penalty rate (You are receiving a fantastic tax free return). Scenario 3: the bond NEVER resets at a lower rate and the issuer eventually refinances (you lose zero). Is that right?
And resulted in the famous headline— “Ford to City: DROP DEAD” Joey is right, it can happen (almost happened in vallejo, ca this past week), but what’s happening now in the muni market has little to do with underlying credits.
virgin, make sure you read the auciton process appendix to the official statement. It will tell you what the max. rate will be if the auction fails. Some have much lower rates than others. Also examine the underlying credit of the issuer-- what is their rev. source to repay bonds, do they have a lot of ars outstanding that they are getting killed on, etc. A municipality is likely in better shape to deal with the higher interest payments than a health care credit.
Interesting. Thanks for the education. I obviously need to get my head out of the books (or my a$%) and pay closer attention. Margin calls forcing securities to be sold at already depressed prices. Interesting. 1975, wow, that was like, a long time ago. For the record I am old, not quite old enough to remember 75, but I was alive then and 'round these parts that makes me old.
After looking at some strange prospectus for 5 minutes it got me thinking maybe the best way to play this would be to find CEFs that hold a lot of resets. They will have a lot of extra cash very soon.