Just curious if there are any municipal bond investors who could help provide some insight. Do they publish historical default rate data somewhere for each grade of municipal bond?

Comparing to a US treasury which I regard as 100% default safe (the gov't would never default, just print more money), how do high grade general obligation municipal bonds compare?

Thanks in advance.

Not a ratings expert, but a significant mutual bond investor. A few thoughts:

-- Google the ratings hierarchy. AAA thru A are going to be high on the totem pole.

-- Must munis have the power of taxation, meaning they can increase taxes to cover their debts. Theoretically, they should be a lower default risk than a comparable non-muni.

-- My muni (tax free) return is comparable to a non-muni (after-tax) return. Since they're roughly equal, I choose munis because it keeps my marginal tax rate lower for the next dollar of earnings that comes into my portfolio.

Cat spit wrapped in dog spit…

Muni's that highly rated rarely default. Some nervous people consider GO's safer than Rev bonds due to taxing authority but that's nitpicking. In the 2008 era a few muni insurers were approaching default, not the bonds, just the insurer, so trust what you're buying and not who insures it. A&M has a lot of bonds out there, uninsured but seem safe to me. ISD bonds are considered the best but you pay for them. I had a client with a significant amount of money and it was getting hard to find bonds he liked, I suggested we turn part over to a fee manager and compare after a year or two. Paid 50 BP's for $500K and the manager bought and sold at will. This portion actually outperformed the rest of his portfolio.

These stats are from a long time ago, but it wouldn't surprise me it is still accurate.

Less than 1/2 of 1% of all investment grade muni bonds default.

Even the ones that did, most were paid back several years later.

All, thanks for the replies. I am thinking about putting some money to work with some municipal bonds later this year, since the yields have started becoming favorable. These recent rate hikes may be a once in 50 year opportunity. I think I am going to try and stick with areas within Texas that I am fairly familiar with that seem solid in terms of income/wealth of the taxpayers etc.

As a matter of fact, my local ISD has an upcoming bond election. Any idea how to get your hands on local ISD bonds? I am sure they are unlikely to just show up on my brokerage firm's website. Do you have to approach the school board about this? Or, do they just carve out particular local buddies they want to have them and that is the end of it?

You typically won't be able to get local ones. It is much cheaper for the ISD to sell the entire batch to one or two large firms vs sell them through a bunch of individuals.

You may be surprised at how many ISDs can be purchased through your advisor.

OldArmyCT said:

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Paid 50 BP's for $500K and the manager bought and sold at will. This portion actually outperformed the rest of his portfolio.

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Can you elaborate on his strategy or was it black-box?

'Return-free Risk' in this environment

Anuone had any experience with Schwab's Wasmer Schroeder group? Kicking the tires on placing a bit with them.

https://www.schwab.com/public/file/P-12928432

How much does it cost?

looks like .35 bps for a ladder (they can do TX munis only). My biggest hurdle recently has been getting access to issues in the highest credit quality tier (ISD's and GO's). The MUD's are making me a little nervous if we hit a hard recession as folks aren't paying bills on time as already are (see AT&T and recent issues with Bryan Utilities).

I hear you on trying to stay away from the MUDs. What are yall's thoughts on other non-MUD utilities? For instance, I found a few LCRA (Lower Colorado River Authority) bonds (transmission lines and such) on my broker's website.

I wonder about the risk of a larger utility like that. I would think it would be low. However, the environmentalist types in Austin (even though the power plant serves Austin!) have been trying to shut down their Fayettteville, TX coal plant for years. Just wondering how an event like that, if it ever came to fruition, would affect things.

I buy Texas County, City, and ISD tax free bonds for myself and my elderly mom for our "safe asset" money.
I avoid revenue bonds, only buy general obligation.
ISD bonds are backed by the permanent fund so are the safest.
Bought quite a few over 4% recently.

For safe money, holding them to maturity ( or call date) is not a bad idea.

There is some thought that as the recession deepens, the flight to safety in late 2023, early 2024 will be in long term Treasuries which are a bargain (TLT) now. Something to research and consider.

Quote:

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There is some thought that as the recession deepens, the flight to safety in late 2023, early 2024 will be in long term Treasuries which are a bargain (TLT) now. Something to research and consider.

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Yeah, I hear you on bond prices heading upwards soon. I am looking to do some shifting over to bonds between now and early next year. I hope I am not missing the bottom by not acting faster.

One thing I am not clear on is how bond prices act in the face of continued rising interest rates and a looming recession. Those two seem like counter-acting forces (interest rate hikes driving bond prices lower and the "flight to safety" driving the bond prices higher).