So who knows about investing in Municpal Bonds?

[TheNinja]

What is up with the "yield"? Is that yearly compounded? Is that just your basic return once the bond matures? I don't get it and didn't have much luck on google or wiki.

 

[Imp]

Yield has something to do with the coupons and overall interest rate. It changes all the time because bonds are traded...

I tried taking a course concerning this shit a few weeks ago, but just gave up because it was so damn boring and confusing... Good luck.

 

[SKC]

The bond in question may be quoted at different yields (yield to maturity, yield to call, yield to worst). In a real world scenario one would likely not realize the quoted yield, because that assumes all coupon payments can be reinvested at the same initial rate (ie they're compounded as well).

add: the yield quoted is also a function of the bond's coupon (eg California GO 5% due 05/15/25 --> 5% is the coupon) vs its price (in a nutshell based on current interest rates; if the bond's coupon is higher than current rates the bond should be priced at a premium and vice versa).

http://www.investopedia.com/university/bonds/bonds3.asp#axzz1Pw3hzTP9 does not work in chrome

 

[TheNinja]

The bond in question may be quoted at different yields (yield to maturity, yield to call, yield to worst). In a real world scenario one would likely not realize the quoted yield, because that assumes all coupon payments can be reinvested at the same initial rate (ie they're compounded as well).

add: the yield quoted is also a function of the bond's coupon (eg California GO 5% due 05/15/25 --> 5% is the coupon) vs its price (in a nutshell based on current interest rates; if the bond's coupon is higher than current rates the bond should be priced at a premium and vice versa).

http://www.investopedia.com/university/bonds/bonds3.asp#axzz1Pw3hzTP9 does not work in chrome

I'll definitely have to read more from that site. The reason I was asking is b/c there is a guy here claiming he gets like 7% guaranteed, plus it's tax free since it's municipal. I looked on Etrade and see some with like a 8.x% Yield until 2029. I mean I know it's a long time to tie up money, but I'll take a guaranteed 8% every year for 18 years. But then I started reading more and realized it's not that simple

I went from ? to to ? to to ?

 

[SKC]

Hope it helped a little. Municipal bonds are definitely good to consider in a well balanced portfolio. Sorry for the superficial explanations (busy day), feel free to PM/ask for further detail.

 

[kranky]

Two things: make sure you understand what your marginal tax rate is, and make sure you understand what it means when a bond is callable.

If a bond issuer can refinance at a lower rate (just like homeowners do), they will do so, and that 8% rate will be short-lived.

 

[TheNinja]

Hope it helped a little. Municipal bonds are definitely good to consider in a well balanced portfolio. Sorry for the superficial explanations (busy day), feel free to PM/ask for further detail.

ya, that helps and gives me a good place to start researching

Two things: make sure you understand what your marginal tax rate is, and make sure you understand what it means when a bond is callable.

If a bond issuer can refinance at a lower rate (just like homeowners do), they will do so, and that 8% rate will be short-lived.

thanks for the tips too. I figure usually if it seems to good to be true, it's likely that it is. i'm just trying to find safe spots for cash right now with some sort of return better than just cash, but don't want to risk any more in the stock market right now.

 

[the DRIZZLE]

Also keep in the mind that the coupon yield is different from the current yield. The coupon yield is the coupon / face value. The current yield is based on the coupon and the market value.