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Zero yield



March 14, 2010 – Comments (5)

I found a blog I had not read before which summarized on chasing yield.

This guy's advise was to invest in muni-bonds.

Everywhere I look municipalities are in serious financial trouble so I am not so sure that's where I'd want to be putting my money.  And who still trusts ratings?

5 Comments – Post Your Own

#1) On March 14, 2010 at 11:35 PM, alstry (< 20) wrote:

My guess he is taking advice from Donner.......

Just kidding, I know you two are friends and absent our sarcasm, he is probably a really nice person.

My friend is a trader on one of the largest bond desks in the county, there is a belief out there that the government will step in and guarantee much of the debt......if that is true, than munis are a compelling value....if not:(

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#2) On March 14, 2010 at 11:51 PM, starbucks4ever (87.71) wrote:

It's a non-recourse debt. The city pays it as long as it wants to. When it doesn't feel like paying it, it stops paying. One fine morning you receive a letter which tells you that the city has forgiven its creditors.

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#3) On March 15, 2010 at 1:11 AM, dwot (29.11) wrote:

Just as I was saying I would not trust the municipal bonds, FA has a post showing how much trouble they are in.  Right now a 2 trillion dollar hole.

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#4) On March 15, 2010 at 1:26 AM, Donnernv (< 20) wrote:

There are several types on muni bonds.  The safest are GO (general obligation) bonds backed by the taxing authority of the issuer.  The other main type are revenue bonds, backed by the revenues from the issuing authority.

No issuer ever wants to default on GO bonds.  Their ability to issue bonds would be trashed, punishing their ability to issue bonds forever.  Bonds issued as revenue backed often are marketed by authorities who have the ability to raise their revenues by increasing tolls, rental rates or fees.

None are bullet proof.  That is why I depend on Nuveen's ability to discern the stronger from the weaker.  There is a fee for this, of course.  For now, I'm in NQU.  Nearly 7% tax-exempt.

The best route to assessing the perceived risk is to examine their portfolio, which is available online.  For now, I cash the tax-exempt checks and check the price daily.  If they falter, I'm out.

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#5) On March 15, 2010 at 1:39 AM, starbucks4ever (87.71) wrote:


I understand that NQU is as good an investment as one can find nowdays in this ridiculously overpriced market. But I just don't feel this 7% yield is a terrific bargain. It's but an adequate compensation for the risk. Just ask yourself this question: if you borrow money at 7% and you don't have a printing press, how long can you keep doing that? You'd better hope they get refinanced at 3% and really soon.

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