Muni Bond CEF's are Working

[adios]

At least for the past few days. I track 27 of them and the vast majority were up. Not by a lot but enough. A couple are at 6.75% yield but the rest are all over 7% yield and the divis are tax free. Stocks and corporate bond funds I track were stinky, stinky.

[MtSmalls]

Muni Closed ends are the biggest steal in the market right now (good). The fact that most trade at discounts, boosts the yield to those levels, though the underlying bonds aren't paying nearly that much. Be careful though, when you sell the shares, the gains are taxable as long or short term taxable gains. Some of the dividend paid is also taxable (you should get a 1099-INT at the end of the year to tell you how much).

[Ray Zee]

interest rates are poised to start increasing in the future. this will drop the value of interest bearing securities. the yield will look good but you will have less money. as long as you get out when the first smell of rate hikes comes you will survive and prosper.

for those that are still learning, the cash value of a bond you hold is inversely related to the movement of interest rates.

[adios]

"interest rates are poised to start increasing in the future."

Yep that is big concern.

"this will drop the value of interest bearing securities. the yield will look good but you will have less money."

Yep.

" as long as you get out when the first smell of rate hikes comes you will survive and prosper."

It always seems like that's easy but it isn't.

With an increased budget deficit many thought that the middle of the yield curve would have to go down in price-increase in yield for government bonds. Not the case.

Closing yields today.

<ul type="square"> Maturity 3 Month 1.10 6 Month 1.12 2 Year 1.53 5 Year 2.72 10 Year 3.76 30 Year 4.74 [/list]

Closing yields one month ago.

<ul type="square"> Maturity 3 Month 1.05 6 Month 1.11 2 Year 1.63 5 Year 2.89 10 Year 3.96 30 Year 4.87 [/list]

It looks to me like the market is almost pricing in another rate cut. I know the trend is down in yield on tresuries from a year ago. Absoulutiely incredible. The bonds continue to rally as it seemingly never ends. Who the heck is going to be satisified with a 3.76% yield from a 10 year? The guy who can sell it for 3.5% yield tomorrow. My question is, is this a total misallocation of resources (trying not to use the word bubble) or is it something that's going to be around for some time. You'd think yields wouldn't stay this low but I don't really know.

Check out the yields on munis

http://bonds.yahoo.com/rates.html

We're talking some seemingly puny yields but then again my frame of reference is in previously inflationary times. I wonder how low mortgage rates are going and how long this rally in the bonds will continue?

[adios]

"The fact that most trade at discounts, boosts the yield to those levels,"

That helps but the funds that are paying the higher yields are using leverage which has the biggest effect on generating the higher yields.

[Ray Zee]

Tom,

short run changes like this in yields have so many reasons for occuring its too hard to pin down the trend. i try to use the economy to pick how rates will go. right now with money tight but banks willing to loan, it is real hard to figure what anyone will buy.
we are real close to being in a depression if the job market goes down further. and could face inflation from budget and international problems. yet the economy seems to be doing fine. that can chage quickly in this scenario. right now i dont know of any good way to make money except by earning it. i tend to think in times like this where the direction has more downside than up your money should be in your pocket. having said all of that crap i still am sinking big bucks into real estate, as thats where i see the big money with the least risk always being made. remember will rodgers said" they aint making anymore of it". where secuities are created with the stroke of a pen.