Munis getting slaughtered!

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justsomeguy2018
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Munis getting slaughtered!

Post by justsomeguy2018 » Thu Mar 19, 2020 1:56 pm

Ugh so much for safety in bonds.

Should i sell at a loss and invest in treasuries, or just hang on and hope the govt bails them all out?

NYCPete
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Re: Munis getting slaughtered!

Post by NYCPete » Thu Mar 19, 2020 2:12 pm

"Slaugthered?" Is that word really appropriate here? At yesterday's close, Vanguard Intermediate Term Tax Exempt was down less than 3% this year. The global stock market is down almost 30% this year.

If you need this money soon, shouldn't it be in cash?

Best,
Peter
To the extent that a fool knows his foolishness, | He may be deemed wise | A fool who considers himself wise | Is indeed a fool. | | Buddha

EHEngineer
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Re: Munis getting slaughtered!

Post by EHEngineer » Thu Mar 19, 2020 2:12 pm

justsomeguy2018 wrote:
Thu Mar 19, 2020 1:56 pm
Ugh so much for safety in bonds.

Should i sell at a loss and invest in treasuries, or just hang on and hope the govt bails them all out?
so much emotion here.

which muni's are you talking about? Did you look at muni performance in late '08 / early '09 before you bought munis? some of them went down with stocks during that time, although with much smaller magnitudes than stocks. My muni fund is VG short term VWSUX, which is down 0.83% YTD. Quite a solid performance, I'm very happy with them.

Munis have a historically low default rate. They famously survived the fiancial crisis even after a then famous prognosticator predicted a massive default. I can't tell you what to do, but if you were poorly informed, and now realize their risk is not what you want then first do your research and move on. But if you're just venting and looking for reassurance, then hang in there.
Or, you can ... decline to let me, a stranger on the Internet, egg you on to an exercise in time-wasting, and you could say "I'm probably OK and I don't care about it that much." -Nisiprius

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justsomeguy2018
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Re: Munis getting slaughtered!

Post by justsomeguy2018 » Thu Mar 19, 2020 2:56 pm

NYCPete wrote:
Thu Mar 19, 2020 2:12 pm
"Slaugthered?" Is that word really appropriate here? At yesterday's close, Vanguard Intermediate Term Tax Exempt was down less than 3% this year. The global stock market is down almost 30% this year.

If you need this money soon, shouldn't it be in cash?

Best,
Peter

MUB is down 14% from 4 weeks ago.....most of that drop happening in the last 3 or 4 days.

i don't need the cash at the moment, I just did not expect my bonds to fall 15% during the same period stocks fell 30%. That is not much of a "safety asset" to me. It isn't an extremely large position, I just added some munis in my taxable account for diversity (and to avoid taxes). Total position is about $1400 in a small taxable account. I live in an income tax free state.

EHEngineer
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Re: Munis getting slaughtered!

Post by EHEngineer » Thu Mar 19, 2020 3:16 pm

justsomeguy2018 wrote:
Thu Mar 19, 2020 2:56 pm
MUB is down 14% from 4 weeks ago.....most of that drop happening in the last 3 or 4 days.
Check again. It's down 4.5% from 2/19 (S&P500 peak) to 3/18, aka 4 weeks ago. It's down only 2.75% YTD. Hardly "slaughtered" It appears down another 2.3% today, but that's not shown in morningstar data yet.
Or, you can ... decline to let me, a stranger on the Internet, egg you on to an exercise in time-wasting, and you could say "I'm probably OK and I don't care about it that much." -Nisiprius

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gmaynardkrebs
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Re: Munis getting slaughtered!

Post by gmaynardkrebs » Thu Mar 19, 2020 3:25 pm

My understanding is that the Muni market is quite different today than it was in 2008/2009. Back then, it was dominated by mom and Pop investors, who had to go through a broker to sell their muni bonds. The broker would then talk them out of it, which was probably very good advice. That could be a significant reason why municipal bonds held up so well during the earlier crisis. Compared with that era, A greater percentage of municipal bonds are held through mutual funds or ETFs today, leading to the possibility of "dumping" into an illiquid market.

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Re: Munis getting slaughtered!

Post by Gill » Thu Mar 19, 2020 3:27 pm

justsomeguy2018 wrote:
Thu Mar 19, 2020 2:56 pm
It isn't an extremely large position, I just added some munis in my taxable account for diversity (and to avoid taxes). Total position is about $1400 in a small taxable account. I live in an income tax free state.
You really have $1,400 in munis? Are you sure you should be in munis at all? What is your tax bracket?
Gill
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watchnerd
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Re: Munis getting slaughtered!

Post by watchnerd » Thu Mar 19, 2020 3:31 pm

justsomeguy2018 wrote:
Thu Mar 19, 2020 1:56 pm
Ugh so much for safety in bonds.

Should i sell at a loss and invest in treasuries, or just hang on and hope the govt bails them all out?
Munis aren't expected to do well during a crisis.

That's not the role they play in a portfolio.

You don't get to have both tax-exempt interest + max crisis protection in a single holding.

There is no free lunch.
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rkhusky
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Re: Munis getting slaughtered!

Post by rkhusky » Thu Mar 19, 2020 3:31 pm

Note also that there has been some disconnect between ETF's and mutual funds. There are a couple threads discussing the matter.

NYCPete
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Re: Munis getting slaughtered!

Post by NYCPete » Thu Mar 19, 2020 3:35 pm

justsomeguy2018 wrote:
Thu Mar 19, 2020 2:56 pm
NYCPete wrote:
Thu Mar 19, 2020 2:12 pm
"Slaugthered?" Is that word really appropriate here? At yesterday's close, Vanguard Intermediate Term Tax Exempt was down less than 3% this year. The global stock market is down almost 30% this year.

If you need this money soon, shouldn't it be in cash?

Best,
Peter

MUB is down 14% from 4 weeks ago.....most of that drop happening in the last 3 or 4 days.

i don't need the cash at the moment, I just did not expect my bonds to fall 15% during the same period stocks fell 30%. That is not much of a "safety asset" to me. It isn't an extremely large position, I just added some munis in my taxable account for diversity (and to avoid taxes). Total position is about $1400 in a small taxable account. I live in an income tax free state.
I've highlighted what I saw as the most important thing you said. Perhaps this experience is a reminder to make sure one knows full well how an asset class is going to behave before choosing to invest in it. Muni bonds are a different beast than treasuries. A national muni fund will have bonds from states on good fiscal footing (like Delaware), as well as states with less solid finances(lookin' at you, Illinois). The federal government has a very different credit rating than individual US states. The overall risks for munis are different, and they move and respond to slightly different events than treasuries. This is true even in calmer times.

Also, it's important to note that intermediate and long term muni bonds are a lot more volatile than short term munis, at least as measured by standard deviation. When I ran short, intermediate, and long term munis through portfolio visualizer, from 1978-2020, the difference in volatility was hard to miss:

Code: Select all

Portfolio		Initial Balance	Final Balance			CAGR	Stdev	Best Year	Worst Year	 
Short Muni		$10,000		$48,104 			3.80% 	1.08%	10.15%		0.36%		
Inter Muni		$10,000		$92,234 			5.41% 	5.48%	31.07%		-10.35%		
Long Muni		$10,000		$116,148 			5.99% 	7.05%	38.56%		-16.00%		
Hope this helps put things in a better perspective.

Best,
Peter
To the extent that a fool knows his foolishness, | He may be deemed wise | A fool who considers himself wise | Is indeed a fool. | | Buddha

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gmaynardkrebs
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Re: Munis getting slaughtered!

Post by gmaynardkrebs » Thu Mar 19, 2020 3:37 pm

watchnerd wrote:
Thu Mar 19, 2020 3:31 pm
justsomeguy2018 wrote:
Thu Mar 19, 2020 1:56 pm
Ugh so much for safety in bonds.

Should i sell at a loss and invest in treasuries, or just hang on and hope the govt bails them all out?
Munis aren't expected to do well during a crisis.

That's not the role they play in a portfolio.

You don't get to have both tax-exempt interest + max crisis protection in a single holding.

There is no free lunch.
next to treasury bond or FDIC bank accounts, municipal bonds are among the safest investment available.

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watchnerd
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Re: Munis getting slaughtered!

Post by watchnerd » Thu Mar 19, 2020 3:45 pm

gmaynardkrebs wrote:
Thu Mar 19, 2020 3:37 pm
next to treasury bond or FDIC bank accounts, municipal bonds are among the safest investment available.
Among the safest is not the same as "risk free".

If you want the risk free assets (cash, T-bills) for max crisis protection, you give up returns.

Anything greater than the risk free return rate is, by definition, adding risk somewhere.
70% Global Market Weight Equities | 15% Long Treasuries 15% short TIPS & cash || RSU + ESPP

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justsomeguy2018
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Re: Munis getting slaughtered!

Post by justsomeguy2018 » Thu Mar 19, 2020 3:52 pm

Gill wrote:
Thu Mar 19, 2020 3:27 pm
justsomeguy2018 wrote:
Thu Mar 19, 2020 2:56 pm
It isn't an extremely large position, I just added some munis in my taxable account for diversity (and to avoid taxes). Total position is about $1400 in a small taxable account. I live in an income tax free state.
You really have $1,400 in munis? Are you sure you should be in munis at all? What is your tax bracket?
Gill

In the 24.9% bracket. Thought munis would be an appropriate tax efficient bond to hold in my taxabke account (started about 18 mos ago)

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Re: Munis getting slaughtered!

Post by ballons » Thu Mar 19, 2020 3:58 pm

watchnerd wrote:
Thu Mar 19, 2020 3:45 pm
gmaynardkrebs wrote:
Thu Mar 19, 2020 3:37 pm
next to treasury bond or FDIC bank accounts, municipal bonds are among the safest investment available.
Among the safest is not the same as "risk free".

If you want the risk free assets (cash, T-bills) for max crisis protection, you give up returns.

Anything greater than the risk free return rate is, by definition, adding risk somewhere.
If you want to go by definitions, there is no such thing as a risk free asset. Declaring an asset risk free does not make them risk free.

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Re: Munis getting slaughtered!

Post by BillyK » Thu Mar 19, 2020 4:02 pm

I have held for quite a while VWITX (Intermediate Term Tax Exempt) as a 2nd or third tier emergency fund along with iBonds. My first tier emergency fund is a money market account. However, I have always known there a bit of downside risk with munis which is usually the case for the extra return over a money market account. However, I am not too worried and wish many of my other investments were holding up as well as VWITX.

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justsomeguy2018
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Re: Munis getting slaughtered!

Post by justsomeguy2018 » Thu Mar 19, 2020 4:45 pm

EHEngineer wrote:
Thu Mar 19, 2020 3:16 pm
justsomeguy2018 wrote:
Thu Mar 19, 2020 2:56 pm
MUB is down 14% from 4 weeks ago.....most of that drop happening in the last 3 or 4 days.
Check again. It's down 4.5% from 2/19 (S&P500 peak) to 3/18, aka 4 weeks ago. It's down only 2.75% YTD. Hardly "slaughtered" It appears down another 2.3% today, but that's not shown in morningstar data yet.
Incorrect, it was 115.87 on 2/19 and closed today at 101.52., decline of 12.5%.

It started the year at 114.01, down 11% for the year.

It hasn't been this low since mid-2011, which was 9 years ago.

Not what I expected from the bond portion of my portfolio.

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watchnerd
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Re: Munis getting slaughtered!

Post by watchnerd » Thu Mar 19, 2020 5:22 pm

ballons wrote:
Thu Mar 19, 2020 3:58 pm


If you want to go by definitions, there is no such thing as a risk free asset. Declaring an asset risk free does not make them risk free.
Risk free asset is a standard term in Modern Portfolio Theory.

https://www.investopedia.com/terms/r/riskfreeasset.asp

It's not intended to be literal.

They could have called it "least risky", but that's not the term of art.
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SquawkIdent
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Re: Munis getting slaughtered!

Post by SquawkIdent » Thu Mar 19, 2020 5:46 pm

I’ve been waiting for an entry point to VWALX. We are getting closer. :sharebeer

EHEngineer
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Re: Munis getting slaughtered!

Post by EHEngineer » Thu Mar 19, 2020 6:09 pm

justsomeguy2018 wrote:
Thu Mar 19, 2020 4:45 pm
Incorrect, it was 115.87 on 2/19 and closed today at 101.52., decline of 12.5%.

It started the year at 114.01, down 11% for the year.
Yes, overlooking a couple quibbles, I confirmed your results on yahoo finance. This is the first time I've seen deceivingly incorrect data on morningstar. Here's the apparently erroneous info I found. http://quotes.morningstar.com/chart/fun ... 2%3A955%7D

Your fund is doing about 5.6% worse than either of the vanguard IT Muni or Vanguard LT Muni funds. That appears mostly explained by MUB trading at a 5.5% discount to NAV as of 3/18 (per the ishares website). That's unacceptable to me. One thing this downturn has taught me is that bond ETFs can and are deviating substatially from NAV. There were a few threads recently noting a 2% difference between VAnguard's total bond funds BND and VBTLX. That was also explained by deviations from NAV. I am glad I stuck with mutual funds.

Given that you've only lost about a hundred, I would probably sell out and move to a high quality bond mutual fund, or to a bank CD. My own opinion is nothing longer than a short term fund. Folks often recommend IT treasuries, but I have a hard time accepting the term risk at these low rates.

Good luck.
Or, you can ... decline to let me, a stranger on the Internet, egg you on to an exercise in time-wasting, and you could say "I'm probably OK and I don't care about it that much." -Nisiprius

GaryA505
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Re: Munis getting slaughtered!

Post by GaryA505 » Thu Mar 19, 2020 6:33 pm

I've held a pretty good chunk of VWALX for the last 3 years in my taxable account. I have several lots, but overall right now it's down about 4.6% from the original purchase cost. Considering the interest I've received, I don't have any complaints.

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Re: Munis getting slaughtered!

Post by birdog » Thu Mar 19, 2020 9:48 pm

I think illiquidity in the muni ETF market paired with crazy volatility and the nature of this economic pause is causing the big drop. I’m holding fast to VTEB. Once the economy is firing again and the panic abates, I anticipate a fairly robust recovery in muni’s. I HATE to sell at all time lows, which is what VTEB is at. Not gonna do it.

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Re: Munis getting slaughtered!

Post by watchnerd » Thu Mar 19, 2020 9:51 pm

birdog wrote:
Thu Mar 19, 2020 9:48 pm
I think illiquidity in the muni ETF market paired with crazy volatility and the nature of this economic pause is causing the big drop. I’m holding fast to VTEB. Once the economy is firing again and the panic abates, I anticipate a fairly robust recovery in muni’s. I HATE to sell at all time lows, which is what VTEB is at. Not gonna do it.
If you have confidence in munis, why would you sell at all?
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JimmyJammy
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Re: Munis getting slaughtered!

Post by JimmyJammy » Thu Mar 19, 2020 10:01 pm

I dumped MUB. Still holding VNYTX

Not much of a buffer on the downside and not much reward on the upside. I'd rather use the cash to pounce on equities once we are finally carving out a bottom.

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Re: Munis getting slaughtered!

Post by mrspock » Fri Mar 20, 2020 1:09 am

birdog wrote:
Thu Mar 19, 2020 9:48 pm
I think illiquidity in the muni ETF market paired with crazy volatility and the nature of this economic pause is causing the big drop. I’m holding fast to VTEB. Once the economy is firing again and the panic abates, I anticipate a fairly robust recovery in muni’s. I HATE to sell at all time lows, which is what VTEB is at. Not gonna do it.
I have a relatively "small" (six figure) position in VTEB, which has so far seen 25k go up in smoke, some 18k of that due to the NAV/share price spread. I'm holding pat too, definitely a lesson here. I'm half tempted to sell my VWITX (which has been hit less hard) and scoop up some of the premium myself.

RonSwanson
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Re: Munis getting slaughtered!

Post by RonSwanson » Fri Mar 20, 2020 2:07 am

JimmyJammy wrote:
Thu Mar 19, 2020 10:01 pm
I dumped MUB. Still holding VNYTX

Not much of a buffer on the downside and not much reward on the upside. I'd rather use the cash to pounce on equities once we are finally carving out a bottom.
How will you know that we are at the bottom, while we are at the bottom?

fennewaldaj
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Re: Munis getting slaughtered!

Post by fennewaldaj » Fri Mar 20, 2020 2:11 am

Even Vanguards high yield muni fund is only down 7%. Not exactly great but I don't know that I would call that a slaughter yet.

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Re: Munis getting slaughtered!

Post by technovelist » Fri Mar 20, 2020 3:02 am

RonSwanson wrote:
Fri Mar 20, 2020 2:07 am
JimmyJammy wrote:
Thu Mar 19, 2020 10:01 pm
I dumped MUB. Still holding VNYTX

Not much of a buffer on the downside and not much reward on the upside. I'd rather use the cash to pounce on equities once we are finally carving out a bottom.
How will you know that we are at the bottom, while we are at the bottom?
Because most of the posts here will be "I'm never buying equities again!". :D
In theory, theory and practice are identical. In practice, they often differ.

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Re: Munis getting slaughtered!

Post by Frank2012 » Fri Mar 20, 2020 5:40 am

justsomeguy2018 wrote:
Thu Mar 19, 2020 1:56 pm
Ugh so much for safety in bonds.

Should i sell at a loss and invest in treasuries, or just hang on and hope the govt bails them all out?
It doesn't bother me one bit that my muni bond fund is getting "slaughtered". I don't intend to bail out of it. In fact, I view this as a buying opportunity.

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birdog
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Re: Munis getting slaughtered!

Post by birdog » Fri Mar 20, 2020 7:03 am

justsomeguy2018 wrote:
Thu Mar 19, 2020 1:56 pm
Ugh so much for safety in bonds.

Should i sell at a loss and invest in treasuries, or just hang on and hope the govt bails them all out?
My belief is that, just like the last time (remember Meredith Whitney in 2010) the rumors of the death of muni’s has been greatly exaggerated.

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Re: Munis getting slaughtered!

Post by gmaynardkrebs » Fri Mar 20, 2020 7:49 am

birdog wrote:
Fri Mar 20, 2020 7:03 am
justsomeguy2018 wrote:
Thu Mar 19, 2020 1:56 pm
Ugh so much for safety in bonds.

Should i sell at a loss and invest in treasuries, or just hang on and hope the govt bails them all out?
My belief is that, just like the last time (remember Meredith Whitney in 2010) the rumors of the death of muni’s has been greatly exaggerated.
I would still be cautious, as a rescue plan for state and local municipalities, should it be needed, has not yet been proposed. I will not sell my intermediate and long munis, but I did move my muni mm to Treasury mm.

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birdog
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Re: Munis getting slaughtered!

Post by birdog » Fri Mar 20, 2020 8:47 am

gmaynardkrebs wrote:
Fri Mar 20, 2020 7:49 am
birdog wrote:
Fri Mar 20, 2020 7:03 am
justsomeguy2018 wrote:
Thu Mar 19, 2020 1:56 pm
Ugh so much for safety in bonds.

Should i sell at a loss and invest in treasuries, or just hang on and hope the govt bails them all out?
My belief is that, just like the last time (remember Meredith Whitney in 2010) the rumors of the death of muni’s has been greatly exaggerated.
I would still be cautious, as a rescue plan for state and local municipalities, should it be needed, has not yet been proposed. I will not sell my intermediate and long munis, but I did move my muni mm to Treasury mm.
I agree. I'm actually more than cautious, I'm a bit alarmed (probably too strong of a word) by the drop in VTEB. I won't be buying any more, but I have no plans to sell either. I do plan on rethinking my bond portfolio strategy after the waters calm in light of recent events. My thoughts are that slightly more treasuries and slightly less muni's and corporates might be in order.

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Re: Munis getting slaughtered!

Post by sport » Fri Mar 20, 2020 8:57 am

watchnerd wrote:
Thu Mar 19, 2020 9:51 pm
birdog wrote:
Thu Mar 19, 2020 9:48 pm
I think illiquidity in the muni ETF market paired with crazy volatility and the nature of this economic pause is causing the big drop. I’m holding fast to VTEB. Once the economy is firing again and the panic abates, I anticipate a fairly robust recovery in muni’s. I HATE to sell at all time lows, which is what VTEB is at. Not gonna do it.
If you have confidence in munis, why would you sell at all?
You could tax loss harvest. Any reason not to?

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birdog
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Re: Munis getting slaughtered!

Post by birdog » Fri Mar 20, 2020 9:44 am

watchnerd wrote:
Thu Mar 19, 2020 9:51 pm
birdog wrote:
Thu Mar 19, 2020 9:48 pm
I think illiquidity in the muni ETF market paired with crazy volatility and the nature of this economic pause is causing the big drop. I’m holding fast to VTEB. Once the economy is firing again and the panic abates, I anticipate a fairly robust recovery in muni’s. I HATE to sell at all time lows, which is what VTEB is at. Not gonna do it.
If you have confidence in munis, why would you sell at all?
I may adjust my bond portfolio down the road (not in the middle of a crisis) because I want to own bonds for safety. I got a bit entranced by the tax-free yield of VTEB and built it up to 50% of my bond holdings (my only other holding is BIV (inter bond index)). They way VTEB has been beaten down has, in my mind, exposed a flaw in my bond portfolio strategy. I would like to limit it to maybe 30% of my bonds and potentially add more intermediate term treasuries (VGIT).

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watchnerd
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Re: Munis getting slaughtered!

Post by watchnerd » Fri Mar 20, 2020 9:50 am

birdog wrote:
Fri Mar 20, 2020 9:44 am
watchnerd wrote:
Thu Mar 19, 2020 9:51 pm
birdog wrote:
Thu Mar 19, 2020 9:48 pm
I think illiquidity in the muni ETF market paired with crazy volatility and the nature of this economic pause is causing the big drop. I’m holding fast to VTEB. Once the economy is firing again and the panic abates, I anticipate a fairly robust recovery in muni’s. I HATE to sell at all time lows, which is what VTEB is at. Not gonna do it.
If you have confidence in munis, why would you sell at all?
I may adjust my bond portfolio down the road (not in the middle of a crisis) because I want to own bonds for safety. I got a bit entranced by the tax-free yield of VTEB and built it up to 50% of my bond holdings (my only other holding is BIV (inter bond index)). They way VTEB has been beaten down has, in my mind, exposed a flaw in my bond portfolio strategy. I would like to limit it to maybe 30% of my bonds and potentially add more intermediate term treasuries (VGIT).
I may be misremembering, but I think Rick Ferri recommended no more than 25% in munis at one point.

Personally, even though I'm in a tax bracket that could benefit from munis, I just don't need the near term income stream munis provide, as we save 200% of our cost of living every year.

It's total return, and real return, of the whole portfolio I care about, so I just put a bit more in equities and then go with govt bonds of various flavors (long Treasuries, short TIPS, Treasury MM fund..see sig).
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Corsair
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Re: Munis getting slaughtered!

Post by Corsair » Fri Mar 20, 2020 10:02 am

Fed announced they are buying munis now

https://www.cnbc.com/2020/03/20/the-fed ... bonds.html
Stocks only go up?

dukeblue219
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Re: Munis getting slaughtered!

Post by dukeblue219 » Fri Mar 20, 2020 10:02 am

The Fed is now buying Munis directly. MUB and VTEB popped a couple percent immediately.

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justsomeguy2018
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Re: Munis getting slaughtered!

Post by justsomeguy2018 » Fri Mar 20, 2020 10:05 am

So I was right? Lol.
...or just hang on and hope the govt bails them all out?

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justsomeguy2018
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Re: Munis getting slaughtered!

Post by justsomeguy2018 » Fri Mar 20, 2020 10:07 am

This raises a question - how is the govt going to bail out everyone? The bond market, airlines, travel, the low-income consumer, small business - what is the end result going to be of all this?

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Re: Munis getting slaughtered!

Post by CoastalWinds » Fri Mar 20, 2020 10:16 am

Nice to see munis bouncing back today.

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gasman
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Re: Munis getting slaughtered!

Post by gasman » Fri Mar 20, 2020 10:19 am

justsomeguy2018 wrote:
Fri Mar 20, 2020 10:07 am
This raises a question - how is the govt going to bail out everyone? The bond market, airlines, travel, the low-income consumer, small business - what is the end result going to be of all this?
Don't forget hospital systems. Many were just treading water before the corona virus crisis.

drk
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Re: Munis getting slaughtered!

Post by drk » Fri Mar 20, 2020 10:19 am

justsomeguy2018 wrote:
Fri Mar 20, 2020 10:07 am
This raises a question - how is the govt going to bail out everyone? The bond market, airlines, travel, the low-income consumer, small business - what is the end result going to be of all this?
This isn’t the government bailing anyone out. This is the Fed accepting short-term municipal debt as part of its money market lending facility announced the other day. The government isn’t even involved because the Fed has standing authority to do this in an emergency situation.
Last edited by drk on Fri Mar 20, 2020 10:20 am, edited 1 time in total.

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gmaynardkrebs
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Re: Munis getting slaughtered!

Post by gmaynardkrebs » Fri Mar 20, 2020 10:19 am

Hang on guys -- it looks like Muni MM only..
The Boston Fed will lend to eligible banks and other financial institutions that will be able to use single-state and other tax-exempt munis as collateral. Maturities can’t exceed 12 months.

drk
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Re: Munis getting slaughtered!

Post by drk » Fri Mar 20, 2020 10:20 am

gmaynardkrebs wrote:
Fri Mar 20, 2020 10:19 am
Hang on guys -- it looks like Muni MM only..
The Boston Fed will lend to eligible banks and other financial institutions that will be able to use single-state and other tax-exempt munis as collateral. Maturities can’t exceed 12 months.
Correct.

marky2kk
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Re: Munis getting slaughtered!

Post by marky2kk » Fri Mar 20, 2020 10:24 am

watchnerd wrote:
Fri Mar 20, 2020 9:50 am
birdog wrote:
Fri Mar 20, 2020 9:44 am
watchnerd wrote:
Thu Mar 19, 2020 9:51 pm
birdog wrote:
Thu Mar 19, 2020 9:48 pm
I think illiquidity in the muni ETF market paired with crazy volatility and the nature of this economic pause is causing the big drop. I’m holding fast to VTEB. Once the economy is firing again and the panic abates, I anticipate a fairly robust recovery in muni’s. I HATE to sell at all time lows, which is what VTEB is at. Not gonna do it.
If you have confidence in munis, why would you sell at all?
I may adjust my bond portfolio down the road (not in the middle of a crisis) because I want to own bonds for safety. I got a bit entranced by the tax-free yield of VTEB and built it up to 50% of my bond holdings (my only other holding is BIV (inter bond index)). They way VTEB has been beaten down has, in my mind, exposed a flaw in my bond portfolio strategy. I would like to limit it to maybe 30% of my bonds and potentially add more intermediate term treasuries (VGIT).
I may be misremembering, but I think Rick Ferri recommended no more than 25% in munis at one point.

Personally, even though I'm in a tax bracket that could benefit from munis, I just don't need the near term income stream munis provide, as we save 200% of our cost of living every year.

It's total return, and real return, of the whole portfolio I care about, so I just put a bit more in equities and then go with govt bonds of various flavors (long Treasuries, short TIPS, Treasury MM fund..see sig).
Off topic, but what's your rationale for buying short-term TIPs over long-term TIPs assuming you have a long investment horizon? You want to hedge short-term unexpected inflation rather than long-term unexpected inflation?

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justsomeguy2018
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Re: Munis getting slaughtered!

Post by justsomeguy2018 » Fri Mar 20, 2020 10:26 am

NYCPete wrote:
Thu Mar 19, 2020 3:35 pm
justsomeguy2018 wrote:
Thu Mar 19, 2020 2:56 pm
NYCPete wrote:
Thu Mar 19, 2020 2:12 pm
"Slaugthered?" Is that word really appropriate here? At yesterday's close, Vanguard Intermediate Term Tax Exempt was down less than 3% this year. The global stock market is down almost 30% this year.

If you need this money soon, shouldn't it be in cash?

Best,
Peter

MUB is down 14% from 4 weeks ago.....most of that drop happening in the last 3 or 4 days.

i don't need the cash at the moment, I just did not expect my bonds to fall 15% during the same period stocks fell 30%. That is not much of a "safety asset" to me. It isn't an extremely large position, I just added some munis in my taxable account for diversity (and to avoid taxes). Total position is about $1400 in a small taxable account. I live in an income tax free state.
I've highlighted what I saw as the most important thing you said. Perhaps this experience is a reminder to make sure one knows full well how an asset class is going to behave before choosing to invest in it. Muni bonds are a different beast than treasuries. A national muni fund will have bonds from states on good fiscal footing (like Delaware), as well as states with less solid finances(lookin' at you, Illinois). The federal government has a very different credit rating than individual US states. The overall risks for munis are different, and they move and respond to slightly different events than treasuries. This is true even in calmer times.

Also, it's important to note that intermediate and long term muni bonds are a lot more volatile than short term munis, at least as measured by standard deviation. When I ran short, intermediate, and long term munis through portfolio visualizer, from 1978-2020, the difference in volatility was hard to miss:

Code: Select all

Portfolio		Initial Balance	Final Balance			CAGR	Stdev	Best Year	Worst Year	 
Short Muni		$10,000		$48,104 			3.80% 	1.08%	10.15%		0.36%		
Inter Muni		$10,000		$92,234 			5.41% 	5.48%	31.07%		-10.35%		
Long Muni		$10,000		$116,148 			5.99% 	7.05%	38.56%		-16.00%		
Hope this helps put things in a better perspective.

Best,
Peter
This does help, thanks.

If nothing else this crisis is teaching me a lot more about how to construct the bond portion of the portfolio.

Starfox
Posts: 99
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Re: Munis getting slaughtered!

Post by Starfox » Fri Mar 20, 2020 11:06 am

One positive, if you want out of muni's now, they are up today, the Fed announced they are trying to help the municipal market as it is showing signs of distress.

https://www.wsj.com/articles/federal-re ... 1584712851

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watchnerd
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Re: Munis getting slaughtered!

Post by watchnerd » Fri Mar 20, 2020 11:07 am

Starfox wrote:
Fri Mar 20, 2020 11:06 am
One positive, if you want out of muni's now, they are up today, the Fed announced they are trying to help the municipal market as it is showing signs of distress.

https://www.wsj.com/articles/federal-re ... 1584712851
That's for muni MM funds.
70% Global Market Weight Equities | 15% Long Treasuries 15% short TIPS & cash || RSU + ESPP

Starfox
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Re: Munis getting slaughtered!

Post by Starfox » Fri Mar 20, 2020 11:09 am

watchnerd wrote:
Fri Mar 20, 2020 11:07 am
Starfox wrote:
Fri Mar 20, 2020 11:06 am
One positive, if you want out of muni's now, they are up today, the Fed announced they are trying to help the municipal market as it is showing signs of distress.

https://www.wsj.com/articles/federal-re ... 1584712851
That's for muni MM funds.
Yes - but VTEB is up over 5% today after that news came out.

manuvns
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Re: Munis getting slaughtered!

Post by manuvns » Fri Mar 20, 2020 11:11 am

EM bond were down 22% YTD yesterday and haave yield of over 5% , is there something to lose ?

https://finance.yahoo.com/quote/VWOB?p= ... c=fin-srch

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birdog
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Re: Munis getting slaughtered!

Post by birdog » Fri Mar 20, 2020 11:24 am

watchnerd wrote:
Fri Mar 20, 2020 9:50 am
birdog wrote:
Fri Mar 20, 2020 9:44 am
watchnerd wrote:
Thu Mar 19, 2020 9:51 pm
birdog wrote:
Thu Mar 19, 2020 9:48 pm
I think illiquidity in the muni ETF market paired with crazy volatility and the nature of this economic pause is causing the big drop. I’m holding fast to VTEB. Once the economy is firing again and the panic abates, I anticipate a fairly robust recovery in muni’s. I HATE to sell at all time lows, which is what VTEB is at. Not gonna do it.
If you have confidence in munis, why would you sell at all?
I may adjust my bond portfolio down the road (not in the middle of a crisis) because I want to own bonds for safety. I got a bit entranced by the tax-free yield of VTEB and built it up to 50% of my bond holdings (my only other holding is BIV (inter bond index)). They way VTEB has been beaten down has, in my mind, exposed a flaw in my bond portfolio strategy. I would like to limit it to maybe 30% of my bonds and potentially add more intermediate term treasuries (VGIT).
I may be misremembering, but I think Rick Ferri recommended no more than 25% in munis at one point.

Personally, even though I'm in a tax bracket that could benefit from munis, I just don't need the near term income stream munis provide, as we save 200% of our cost of living every year.

It's total return, and real return, of the whole portfolio I care about, so I just put a bit more in equities and then go with govt bonds of various flavors (long Treasuries, short TIPS, Treasury MM fund..see sig).
I remember something to the effect of 25% or so max in muni's also. I just pushed it to 50% about a year ago and am now seeing the effects. Once this all shakes out I will take an approach a bit more like yours and incorporate more details in my IPS. I appreciate your sharing your approach.

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