Posted in this forum since CEF's and ETF's are kissing cousins.
Along with bonds being generally bid, there has been a corresponding run up in the levered national municipal bond CEFâs (closed end funds). Specifically, while national muni CEFâs used to trade with discounts in the low single digits (through 2005-2011), most of the national muni CEFâs are now trading close to NAV or at a premium. Examples are MUA, PIA,PMM, etc⦠In fact, most of these were recently trading at higher premiums, except for the recent run in Treasuries pumping up NAVâs and making the relative premium drop.
Hereâs where it gets interesting. Take a look at premiums for state specific municipal CEFâs:
BHV: Since early September â late august 2008, traded around NAV with frequent premiums. Since January 2010, has traded at increasing premiums. It hit a premium high of 29% at the beginning of January 2012, and has been at a mean of about 20% over NAV this year.
BZM: Has recently (today)traded up to a 23% premium. Also net positive premium since October last year.
For comparison, look at BPS: started the year at modest 1-2% discount; currently trading right around NAV.
And look at BIE â dealing at NAV, has had up to a very modest premium this year but mostly has been trading at a small discount.
Ticker Price NAV Disc/Prem Dividend Yield
BHV 19.71 16.6 18.73 0.083 5.05
BZM 19.06 15.48 23.13 0.079 4.97
BPS 15.4 15.37 0.20 0.071 5.53
BIE 16.65 16.68 -0.18 0.081 5.84
So, whatâs my point? BHV and BZM are Virginia and Maryland tax free Muni CEFâs, while BPS is Pennsylvania and BIE is a national. Note that BVH and BZM are trading at a 0.5% to 0.8% reduced interest rate relative to the other two. WHY?
Of course, we know that DC is currently one of the places where its booming, and a cogent argument can be made that it is all a matter of supply and demand. Fine. But, given the political distribution of these states, and that folks there seems to be somewhat more âin the knowâ than the rest of us people when it comes to all things politics, is it possible that they are telling us something else?
One of the attractive things about Muni bonds is that in a scenario where higher taxation is implemented, they are one of the few categories of assets to escape. Qualified dividends to be treated as ordinary dividends? Not relevant to Munis. And the leverage of the muni CEFâs may outweigh their generally higher fees in the form of extra yield.
In any case, some folks are willing to pay up to a 30% premium for these assets â compared to other states where the premium is close to zero. And those folks live in the states that are the most connected to the federal government. Iâm not sure you can draw a direct conclusion, but it is coincidental.
Along with bonds being generally bid, there has been a corresponding run up in the levered national municipal bond CEFâs (closed end funds). Specifically, while national muni CEFâs used to trade with discounts in the low single digits (through 2005-2011), most of the national muni CEFâs are now trading close to NAV or at a premium. Examples are MUA, PIA,PMM, etc⦠In fact, most of these were recently trading at higher premiums, except for the recent run in Treasuries pumping up NAVâs and making the relative premium drop.
Hereâs where it gets interesting. Take a look at premiums for state specific municipal CEFâs:
BHV: Since early September â late august 2008, traded around NAV with frequent premiums. Since January 2010, has traded at increasing premiums. It hit a premium high of 29% at the beginning of January 2012, and has been at a mean of about 20% over NAV this year.
BZM: Has recently (today)traded up to a 23% premium. Also net positive premium since October last year.
For comparison, look at BPS: started the year at modest 1-2% discount; currently trading right around NAV.
And look at BIE â dealing at NAV, has had up to a very modest premium this year but mostly has been trading at a small discount.
Ticker Price NAV Disc/Prem Dividend Yield
BHV 19.71 16.6 18.73 0.083 5.05
BZM 19.06 15.48 23.13 0.079 4.97
BPS 15.4 15.37 0.20 0.071 5.53
BIE 16.65 16.68 -0.18 0.081 5.84
So, whatâs my point? BHV and BZM are Virginia and Maryland tax free Muni CEFâs, while BPS is Pennsylvania and BIE is a national. Note that BVH and BZM are trading at a 0.5% to 0.8% reduced interest rate relative to the other two. WHY?
Of course, we know that DC is currently one of the places where its booming, and a cogent argument can be made that it is all a matter of supply and demand. Fine. But, given the political distribution of these states, and that folks there seems to be somewhat more âin the knowâ than the rest of us people when it comes to all things politics, is it possible that they are telling us something else?
One of the attractive things about Muni bonds is that in a scenario where higher taxation is implemented, they are one of the few categories of assets to escape. Qualified dividends to be treated as ordinary dividends? Not relevant to Munis. And the leverage of the muni CEFâs may outweigh their generally higher fees in the form of extra yield.
In any case, some folks are willing to pay up to a 30% premium for these assets â compared to other states where the premium is close to zero. And those folks live in the states that are the most connected to the federal government. Iâm not sure you can draw a direct conclusion, but it is coincidental.
There maybe a fierce battle over the spelling of capital coal/capitol coal.LOL.