Municipal Finance – For Practitioners

Hedging munis — Easier said than done

The Bond Buyer - May 28, 2019

Hedging a muni portfolio which contains bonds priced close to or below par is surprisingly complicated. First, the tax-aware effective duration of such bonds is considerably longer than indicated by conventional OAS models, reflecting the market impact of taxes on price changes not captured by such models. Additionally, tax-aware KRDs may not sum up to the effective duration, and therefore may need to be adjusted to determine the appropriate hedge ratios.

Life Without Advance Refunding

Municipal Finance Journal, Vol Volume 39 Number 03, Fall 2018

The elimination of advance refunding following the signing of the Tax Cuts and Jobs Act in December 2017 will have significant effects on the municipal market. In recent years, most municipal bonds aimed at institutional investors carried an above-market 5% coupon and had a 10-year call. The 5% NC-10 structure had wide appeal for a variety of reasons, a primary one being the bonds' eligibility for advance refunding. In the absence of advance refunding, the 5% NC-10 structure will lose much of its appeal.

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Tax Optimization - Investment Selection and Tax Rate Arbitrage

The Journal of Portfolio Management 2018

Tax-exempt municipal bonds are usually held in taxable accounts. This article discusses how after-tax performance can be increased by tax-beneficial sales.

Don't Let Your Tax-loss Harvest Become a Harvest of Regret

Bond Buyer January 30, 2018

Andy Kalotay's commentary in The Bond Buyer explains how NOT to harvest munis. Financial advisors lack the tools to calculate the benefit from selling, and they routinely recommend transactions that are actually wasteful. With rates set to move higher, many opportunities will present themselves; smart players will want to be prepared with the right tools.

Tax-Offset Municipal Securities
The Bond Buyer (July 9, 2012)
A superior alternative to insured municipal bonds

Rethinking TIC Calculation - Introducing TIC+
The IPREO MuniNewsletter (June 2012)
True Interest Cost that incorporates option value

The Allure of 5% Bonds: Coupon Levitation Creates Magical Savings
The Bond Buyer (January 27, 2012)
Investors love them, but do 5% bonds make sense for the issuer?

SEC Testimony on Municipal Swaps
Birmingham, Alabama, July 29, 2011
Wall Street’s $20 billion hidden tax on municipalities

Call to Issuers: You Pay for Your Options; Why Not Use Them Wisely?
GFOAToday (May 23, 2011)
Municipal refunding practice tends to be wasteful
Do it right using the Bond Buyer Online's Advance Refunding Calculator

Refunding by Rule-of-Thumb: A County Finance Fable
The Bond Buyer (March 25, 2011)
A tongue-in-cheek look at refunding practices

What Makes Muni Swaps So Special?
The Bond Buyer (February 4, 2011)
Municipalities are always overcharged

Making Sense of the Make-Whole Call, From its Origins to BABs
The Bond Buyer (July 26, 2010)
Why investors don’t charge for make-whole calls

Making the Right Call
Credit (October 2010)
Explains contemporary refunding theory
Do it right using the Bond Buyer Online's Advance Refunding Calculator

Ratcheting the Goose That Lays Golden Eggs
The Bond Buyer (May 22, 2009)
Ratchet bonds would eliminate inefficient refundings

Build America Bonds: Seeking the Missing Option
The Bond Buyer (May 11, 2009)
Taxable bonds awaken municipalities to the cost and value of the call option

What Makes the Municipal Yield Curve Rise?
The Journal of Fixed Income (Winter 2008)
Because the yields are of callable bonds
Related Analytics: iteRate™

The Right Discount Rate Can Save Your Life
Financial Engineering News (January/February 2007)
Municipalities should value tax-exempt liabilities using their taxable rates

The Timing of Advance Refunding of Tax-Exempt Municipal Bonds
Municipal Finance Journal (Summer 1998)
Advance refunding should be decided by comparing the savings from refunding to the option value of the bond
Do it right using the Bond Buyer Online's Advance Refunding Calculator

Refunding Tax-Exempt Corporate Bonds in Advance of the Call
The Financier (February 1994)
A case study for an electric utility tender for which AKA served as advisor

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