2020_06_20 — “The Missing 1% in Munis -5, 4, 3, 2, 0”

FAMILY OFFICE ADVICE, INVESTMENT PHILOSOPHY

The Missing 1% in Munis -5, 4, 3, 2, 0

SUMMARY

  • Investors tend to prefer municipal bonds that pay coupon interest, the higher the better; 5% and 4% coupons are much more common than 3% and 2% coupons
  • Municipal bonds with a 1% coupon practically don’t exist; most of those that do were issued this year, and it is not even July yet
  • One percent coupon muni bonds will be more common the longer interest rates remain low; and rates will probably be low for a long while
  • When it comes to munis, don’t confuse current yield with yield to repayment; the current yield often looks more attractive because it is higher, but in a low interest rate environment current yield is mostly composed of one’s own principal paid back to oneself
  • Zero coupon bonds, though ugly to most investors because they have zero current yield, often have relatively attractive yields to maturity and no reinvestment risk

DETAILS

  • 11,456 have a 6% or greater coupon
  • 224,881 have a 5% coupon
  • 160,565 have a 4% coupon
  • 147,914 have a 3% coupon
  • 59,216 have a 2% coupon
  • 20,971 have a 0% coupon; these are known as capital appreciation bonds or more colloquially as zero-coupon bonds
  • Only 531 municipal bonds have a coupon of 1%, the vast majority of them issued this year and most of them mature sooner than 2024

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Avid traveler and art fan, also Partner & Chief Investment Officer @Running Point Capital, a multifamily office and ultra high-net-worth money-management firm

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Michael Ashley Schulman

Michael Ashley Schulman

Avid traveler and art fan, also Partner & Chief Investment Officer @Running Point Capital, a multifamily office and ultra high-net-worth money-management firm

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