patrick.net

The big con is in. Squeeze as many suckers into long term fixed income instruments while the Fed continues to drive rates down. Everyone's doing it. Corporations, governments, states, municipals.

I was looking more for "should small fry even think about it?" Or some kind of discussion about how to buy bonds through the various entities they list. I admit I've only ever traded stocks through ETrade so have no experience with bonds. Well except my Fidelty funds are heavy in bonds but that's not the same.

These are extremely short term bonds which would mature by the next budget cycle by which time, new bonds will be rolled in with different yields. The yieds are around 1.75% and less than that for the tax exempt one. There is little interest rate risk/reward. It's basically no different than a six month CD.

For government accounting purposes, these are revenues to meet expenditures to balance the budget. So even though CA is not allowed to operate at a deficit, the bonds just operate the same way with some interest cost.

The highest CD rate I see is 1.4% so they are a little higher than that, but yeah not by much.

Lots of the same people that spotted the housing bubble think there is a bond bubble, and especially a municipal bond bubble.

Here are two examples, there are many other articles out there:

http://seekingalpha.com/article/236890-are-municipal-bond-markets-collapsing

http://www.zerohedge.com/article/muni-exodus-confirmed-investors-pull-money-affected-funds

Now, if the California bonds in question are 1-year or other short term bonds, that's all very nice, but I can guarantee you that IF there is another crisis in the financial markets, getting quickly out of the bonds without a large loss will become impossible.

And 1 year will seem like a lifetime if you're hoping to buy up stocks or houses at distressed prices.

Wouldn't it be nice of you could just pledge your bonds at the Fed discount window and get cash in return? Well, you don't get to do that. Only the big boy banks can do that. So you're screwed. The system is stacked against you.

Also, many Financial Blogs are predicting that The Fed will soon start buying up Muni Bonds as part of QE2

And there is talk that Pim(p)co and others have been front-running that trade in a big way

justme says

Lots of the same people that spotted the housing bubble think there is a bond bubble, and especially a municipal bond bubble.
Here are two examples, there are many other articles out there:
http://seekingalpha.com/article/236890-are-municipal-bond-markets-collapsing
http://www.zerohedge.com/article/muni-exodus-confirmed-investors-pull-money-affected-funds
Now, if the California bonds in question are 1-year or other short term bonds, that’s all very nice, but I can guarantee you that IF there is another crisis in the financial markets, getting quickly out of the bonds without a large loss will become impossible.
And 1 year will seem like a lifetime if you’re hoping to buy up stocks or houses at distressed prices.
Wouldn’t it be nice of you could just pledge your bonds at the Fed discount window and get cash in return? Well, you don’t get to do that. Only the big boy banks can do that. So you’re screwed. The system is stacked against you.

It may not be right to call it a bubble. But seriously, there's no more room for bonds to move up. Bonds yielding 1% are selling for 100 cents on the dollar. Junk Bonds yielding 10% are selling for $1.09 on the dollar. There is no where else to move but down. Bonds have not defaulted because the Fed has come in through some back door to bailout every single one the past 3 years. Bonds won't default at all. Interest rates will simply rise and destroy the value of all the bonds out there.

The fed isn't going to directly buy muni-bonds. Turbo Tax Timmy is going to have to orchestrate that one. It will be a backdoor bailout in the same fashion that Goldman got paid 100% on their AIG bets by the Fed funneling money into AIG.

justme says

Lots of the same people that spotted the housing bubble think there is a bond bubble, and especially a municipal bond bubble.
Here are two examples, there are many other articles out there:
http://seekingalpha.com/article/236890-are-municipal-bond-markets-collapsing
http://www.zerohedge.com/article/muni-exodus-confirmed-investors-pull-money-affected-funds
Now, if the California bonds in question are 1-year or other short term bonds, that’s all very nice, but I can guarantee you that IF there is another crisis in the financial markets, getting quickly out of the bonds without a large loss will become impossible.
And 1 year will seem like a lifetime if you’re hoping to buy up stocks or houses at distressed prices.
Wouldn’t it be nice of you could just pledge your bonds at the Fed discount window and get cash in return? Well, you don’t get to do that. Only the big boy banks can do that. So you’re screwed. The system is stacked against you.

Buying low yielding bonds, even short term, makes zero sense. There are still stocks out there in viable industries that yield twice as much and do not carry the similar risks. When everyone bought bonds earning 2%, in 2008/2009, the real players were buying up companies yielding 15%.

Cab is right, to a point. It's true that bonds can hardly go up in value from here, but, if you hold to maturity then it doesn't matter.
BUT -
if the issuer defaults you are screwed.
In California, different bonds have different priorities. I think that "General Obligation" bonds are highest. Other ones (let's say a bond secured by revenue stream from an HOT toll lane) could be lower.
Finally, most, but not all muni bonds are tax exempt. There's a case where a muni bond can be AMT taxed, something to do with public issuance for private use. I don't know the details but be sure to investigate before buying.

I use Schwab, and have bought bonds through them. Drawback is that there's some fees built into the bond price, but it's an option.