Municipal Finance

You haven't heard of ratchet bonds?

The Bond Buyer - June 8, 2020

Ratchet bonds are the best debt structure for issuers that you probably never heard of. TVA issued over $1 billion of these in the late 1990s and is still reaping the savings. Read more in Andy Kalotay's Bond Buyer commentary.

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There is hidden value for investors in callable taxables

The Bond Buyer - March 4, 2020

Commentary by Andy Kalotay in The Bond Buyer uncovers the hidden value in callable taxable munis. The calls are triggered by tax-exempt rates, while the bonds' worth depends on taxable rates.

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Are taxable advance refundings leaving money on the table?

The Bond Buyer - Nov 8, 2019

Andy Kalotay's commentary in The Bond Buyer exposes inefficiencies of taxable advance refundings. By refunding too soon issuers receive considerably less than what they give up. 
 
But who benefits from the waste?

The Key Rate Durations of Municipal Bonds

The Journal of Fixed Income (Fall 2019)

By Andy Kalotay and Joel Buursma

Abstract

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Muni OS Boilerplate Headscratcher: Price is ‘Priced to the Call Date’?

The Bond Buyer - Aug 26, 2019

Andy Kalotay's commentary in The Bond Buyer exposes inaccurracy and inconsistecy in muni bond official statements.

Muni OS Boilerplate Headscratcher: Price is ‘Priced to the Call Date’?

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.

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.

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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Yield shocks underestimate the interest rate risk of callable bonds

Bond Buyer

When thinking of interest rates in the taxable world, practitioners look at bellwether indicators such as the 10-year U.S. Treasury yield, and more broadly at the Treasury yield curve — a representation of the interest rates that investors demand across the maturity spectrum. The frequency of the U.S.

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