Why I like Insured Municipal Bonds

Why I like Insured Municipal Bonds

  • Although it has narrowed, the spread between uninsured and insured bonds still favors insured bonds. Stated another way, all else being equal, the yield for insured bonds is still higher than uninsured bonds.
  • I get an added layer of security by buying insured bonds over uninsured bonds and at cheaper yields…so why not?
  • That yield differential changes over time and has been narrowing as seen recently in this period of equity market volatility.
  • Liquidity: In some cases, the bond insurance doesn’t help the secondary market liquidity of a bond. That is a negative to consider.
  • Although insured, I try to look at the underlying credit capabilities of the issuer. I have been looking for insured essential purpose bonds such as utility (i.e. electric, water & sewer) and general obligation bonds.
  • One actively managed insured municipal bond ETF that I have my eye on is the IQ Mackay Insured Municipal Bond ETF (MMIN). I like the low management fee of 30bps, ease of access to the insured muni market via the ETF structure.

Insurance Companies:

  • Assured Guaranty is rated AA (Stable by S&P Global Ratings, A2 Stable by Moody’s and AA Stable by KRBA (Source: www.assuredguaranty.com )
  • Build America Bond (BAM) is rated AA (Stable) by S&P Global Ratings (Source: www.buildamerica.com)
  • NPFG (MBIA): The underlying bond credit quality should be carefully considered prior to buying bonds insured by MBIA.

Insured v. Broad Market Muni Index Yields (YTW)


Data as of 10/17/2018.

Sources: Municipal bond yields sourced from S&P Dow Jones Indices www.spdji.com. Chart is provided for illustrative purposes only.

Analyst Disclosure

  • At this writing JR does not own the Exchange Traded Fund (ETF) mentioned in this report.
  • JR Rieger or the Rieger Report LLC. is not compensated in any way by the sponsor of the ETF.
  • Between July 1st and July 13th 2018, JR Rieger purchased insured municipal bonds and AA and higher rated municipal bonds in the 8 – 14 year maturity range. In September 2018 JR Rieger purchased insured municipal bonds in the 10 year range.
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