Munis
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just a little 'value added' for anyone doing muni bond business. in this type of low interest rate environment, experienced bond buyers want to know the vulnerability of the bonds mkt price if/ when rates make an upward move. the duration of the bond (not the # of years until maturity) is an excellent predictor of how many bps or percentage points a bond will move if interest rates make a 100 basis point move. obviously, you would adjust the equation accordingly, as most int. rate moves are between 25-50 bps.
you don't have to be a CFA to interpret duration. you don't need to get into convexity, and other hyper-analytical discussions, but the durantion # is VERY relevant, easy to explain, and experienced bond buyers will give you all their business if they know that you are managing their price sensitivity as well as all the other components.[quote=Gordon Gekko]When a fund is “on sale” for over a year, you have to wonder if they have more problems than they let on to. They claim they are seeing net inflows which is hard to believe. [/quote]
Stop whining and take the tax loss then…creates more opportunities for those of us who have a long term view and an understanding of the markets…
Hyman,
You seem to be a little too ready to be a prick. Just an observation.
P.S. One with any understanding of the markets knows that whether or not GG sells his shares of any open-end funds neither creates nor destroys any opportunity for anyone.
other FA's in your office that do lots of bond business are a great source to tap for bond information. other great sources: a. your companies fixed income site b. your muni trading desk (when trader has time). * traders speak a language not always understood by the average broker/ client. ask them what they are talking about, and don't get intimidated. to reference my previous post, the real experienced bond buyer clients DO understand that rhetoric. learn it c. gooooooogleWhat would you recommend as a good source for bond-related information?
[quote=YHWY]Hyman,
You seem to be a little too ready to be a prick. Just an observation.
P.S. One with any understanding of the markets knows that whether or not GG sells his shares of any open-end funds neither creates nor destroys any opportunity for anyone.
[/quote]
You are indeed entitled to your opinion. Perhaps I could have found a more constructive way to express myself.
Having said that, if people are selling open end funds and forcing said funds to sell to raise cash, wouldn’t that push down prices and create opportunities if it is happening in sufficient quantity? Isn’t that exactly what is happening right now, at least to some extent?
open-ended fund share prices reflect the value of the fund's holdings, not supply vs. demand, which dictate the price of common stock (if more buyers show up than sellers, stock goes up.....blah blah blah). what has been happening right now, to a severe extent, has been program trades.
[quote=HymanRoth]
[quote=YHWY]Hyman,
You seem to be a little too ready to be a prick. Just an observation.
P.S. One with any understanding of the markets knows that whether or not GG sells his shares of any open-end funds neither creates nor destroys any opportunity for anyone.
[/quote]
You are indeed entitled to your opinion. Perhaps I could have found a more constructive way to express myself.
Having said that, if people are selling open end funds and forcing said funds to sell to raise cash, wouldn’t that push down prices and create opportunities if it is happening in sufficient quantity? Isn’t that exactly what is happening right now, at least to some extent?
[/quote]
Perhaps I should have been more clear…doesn’t the selling to meet redemptions create downward pressure on the price of the underlying securities, which would in this case be muni bonds?
Hyman,
When one open-end fund owner sells his shares of the fund, no, there are no actual (in this case) muni bonds changing hands.
YHWY,
Actaually, if net redemptions exceed the portfolio manager's target cash position then the manager has to sell paper to keep the same allocation. They have some flexibility, but net redemptions lead to liquidations of positions which leads to downwards preasure on asset prices (in this case munis, but the same goes for aa funds, stock funds, hedge funds, etc).ORNAX has a line of credit (they actually just increased it) if they get socked with a ton of redemptions.
GG,
Good point, that is whear the flexibility comes in, but again, increased leverage increases risk, because of that, leverage is usually limited by perspectus, in the end though, if net redemptions continue, the managers have to liquidate. Also, creditors usually require a minimum amount of equity in the funds (either by % or $), which also ties a manager's hands. I don't know if you have ACAS on your books (which is organised as a levereged close end fund), but that is why they have eliminated their div. If their equity falls under $5B, they have to repay 70% of their debt, so management had the choice of liquidating investments or holding back the div. On a bond fund, management does not even have the choice to eliminate the div. (if they did eliminate it , the tax free div would become taxable). So that only leaves selling assts. No matter what way you look at it, net redemptions put price presures on assets.
EZ,
why do you think they are well managed? They have 25% in an illiquid tobacco settlement, they have loaded up on leverage, and give floor traders authorization to buy odd-lotts without consulting the port managment team. They also were long in duration and low in credit quality when most funds were shortening duration and increasing quality. It seems to me that they are a fund that likes to take bets, and they don't seem to turn out well very often.
I remember 6 months before the credit crisis hit, Jones was saying that when it comes to risk adjusted return they were one of Oppys worst preforming bond funds.And now, back to those of us who actually hold securities licenses…
RiverPlate, and others…please re-read this thread. It strikes me that we may have a couple of newly licensed Series 7 Brokers (who probably scored well on the test) in our midst.
There was never a question as to whether or not massive owner-liquidations of any open-end fund could or would force actual assets to be sold (obviously, it would). This whole tangent began when Hyman (LOVE that handle), implied that if Gordon Gecko sold his ORNAX shares, that it would create an opportunity (ANY opportunity) for Hyman. (It would not.).
Somewhere, Hyman Minsky is laughing. What was the default rate in mortgages in 2005?try .001% for high yield munis, the default rate for single A and higher is nil. Give me a break , two years from now we’ll be heros for putting our clients in munis.