Long-Term Muni Bonds With Near 6% Yields

by: Rajiv Tarigopula

For investors seeking relatively safe long-term yields in municipal fixed-income securities, four recent offerings of California public education and general bonds are worth a closer glance. Offering yields upwards of 5.7% to worst amidst the state's budget problems, many income-seeking individuals or those simply looking for a secure place to park their money for the long term would be attracted to such issues. Moreover, the unique tax-free nature of municipal bonds' income appeals to many.

Keep in mind, most states do not tax income from their own municipal bonds, but potentially do tax income from other states' municipal issues. California residents should do their own due diligence before purchasing any of their state's bond issues as described below, as of the time of writing on Friday last.

1) Bradley Un Sch Dist Calif Go Bds (CUSIP: 104592BF6)

These zero-coupon municipal issues mature in August 2044 and are non-callable, tax exempt, and rated A+. A package of 95 bonds (minimum qty. 25) is currently up for auction, at a price of 15.426. Purchasing all 95 of these securities would cost $14,654.70. Considering the yield to maturity of these bonds of 5.92%, long-term investors looking for CD-like rates with tax exemption may be interested in checking these out.

According to Electronic Municipal Market Access (EMMA) from the Municipal Securities Rulemaking Board, financial information will be delivered annually on March 27 of each calendar year for these issues. S&P analysts rated these municipal issues A+, citing a stable outlook and the school district's "strong income indicators on a median household basis, in addition to extremely strong wealth indicators; growing average daily attendance trend, the primary revenue driver; and strong financial performance, coupled with very strong fund reserve levels at 79.1% of expenditures in fiscal year 2011." Potential offsets for these factors, in S&P's opinion, include "small available general fund position in absolute terms, which can lead to volatility in relative terms, and concentrated tax base."

2) Bradley Un Sch Dist Calif Go Bds (CUSIP: 104592BE9)

These similar municipal issues mature one year earlier, in August 2043, and consequently offer slightly less yield to maturity (5.909%). 55 of these issues are available at a price of 16.410, coming to a total cost of $9,025.50 for investors willing to purchase. These bonds are general obligation, non-callable like their above counterparts, and also are zero-coupon.

3) Cypress Calif Elem Sch Dist Go Bds (CUSIP: 232723HP4)

Like their Bradley counterparts, these municipal bond issues are tax exempt, zero-coupon, non-callable, and have a long-term maturity (August 2048). Yield to maturity is 5.815%, and 250 of these are currently on the market. At a price of 12.675, purchasing the entire set with this CUSIP would take $31,687.50 in initial principal. For interested investors, EMMA offers audited financial statements and documents on the school district's budget, etc. here.

S&P analysts have rated these issues A+ as well, citing "the district's strong local economy, situated in Orange County, coupled with strong income and wealth levels; improvement of fund position to strong levels; good financial management policies; and moderate debt burden. Partly offsetting these foregoing strengths is our view of the district's declining enrollment levels, which are a primary driver of revenues for the district."

4) Bassett Calif Uni Sch Dist Go School Bds (CUSIP: 070185PQ0)

Ten of these issues are on the market at a price of 21.866, bringing principal and total cost to $2,186.60 for the package. Yield to maturity is 5.703%, and these bonds are tax-exempt, non-callable, and insured (FGIC-MBIA). Maturity date is August 1, 2039. Continuing disclosures and other documents from EMMA can be found here. S&P analysts have rated these issues A-, citing a stable outlook and "the district's ability to maintain strong reserves, despite falling average daily attendance and continuing operating deficits."

Regardless of whether these particular issues appeal to you, there exist thousands of choices in the municipal fixed-income securities market in the U.S. For investors looking for more speculative plays, corporate fixed-income securities and equities markets currently offer a great deal of volatility and response to recent macroeconomic events.

With respect to equities in particular, individuals looking for investments in California-based companies may consider looking into the future prospects of Mattel (NASDAQ:MAT), Walt Disney Co (NYSE:DIS), DirecTV (DTV), Occidental Petroleum (NYSE:OXY), Consolidated Edison (NYSE:ED), HealthNet (NYSE:HNT), Jacobs (NYSE:JEC), Reliance Steel & Aluminum (NYSE:RS), Aecom Technology (NYSE:ACM), Dole Food Company (NYSE:DOLE), Avery Dennison Corp (NYSE:AVY), among others. However, given the vast number of potential plays in the municipal bond market already, I expect that the coming months will only bring more attractive prospects to the fixed-income category broadly.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.