Pre-refunded municipal bonds

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michaeljmroger
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Joined: Fri Sep 21, 2018 10:54 am

Pre-refunded municipal bonds

Post by michaeljmroger » Mon Oct 22, 2018 11:52 pm

I see very few mentions and recommendations of pre-refunded muni bonds despite their attractive attributes (tax exempt and just as safe as US Treasuries). Why is that? Do people just “forget” about them or is there a good reason to avoid them?

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neurosphere
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Joined: Sun Jan 17, 2010 1:55 pm

Re: Pre-refunded municipal bonds

Post by neurosphere » Tue Oct 23, 2018 2:50 am

michaeljmroger wrote:
Mon Oct 22, 2018 11:52 pm
I see very few mentions and recommendations of pre-refunded muni bonds despite their attractive attributes (tax exempt and just as safe as US Treasuries). Why is that? Do people just “forget” about them or is there a good reason to avoid them?
I had to google pre-refunded bonds. Are you suggesting one should consider buying individual pre-refunded bonds? Or perhaps purchase a mutual fund which only owns such bonds? Or perhaps a mutual fund which includes them as part of a portfolio of other types of muni bonds?

I'm not smart enough to know what individual muni bonds one should take a chance on, pre-refunded or otherwise. When you say these are "just as safe" as treasuries, I assume they that yield is lower than other types of muni bonds. That is, one pays a "price" in order to buy "safety"?
If you have to ask "Is a Target Date fund right for me?", the answer is "Yes".

typical.investor
Posts: 347
Joined: Mon Jun 11, 2018 3:17 am

Re: Pre-refunded municipal bonds

Post by typical.investor » Tue Oct 23, 2018 3:22 am

michaeljmroger wrote:
Mon Oct 22, 2018 11:52 pm
I see very few mentions and recommendations of pre-refunded muni bonds despite their attractive attributes (tax exempt and just as safe as US Treasuries). Why is that? Do people just “forget” about them or is there a good reason to avoid them?
They are included in normal indexes. For example, the Bloomberg Barclays Short 1 to 5 Year Index has a 27% weighting in pre-refunded bonds, as of December 26, 2017 (1)

New issuance was curtailed under the recent tax package and eventually they will disappear I believe.

Anyway, if they are as safe as treasuries, they likely yield less. Munis generally don't default much, especially the highest grade. So stick to those going forward if you like.

I don't think there is that much credit risk in short duration highly rated muni bonds, but yeah pre-refunded munis get recommended sometimes for short high-credit-quality investments.

https://www.schwab.com/resource-center/ ... nded-bonds

https://www.lordabbett.com/en/perspecti ... -bill.html

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