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Mark Conner

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  • Municipal Bond Mark-Ups: Measuring 'Reasonable' [View article]
    Disclaimer: My article was properly and appropriately subject to editing by the SeekingAlpha folks, but as a Catholic grade school product and student of Jesuits, I must vehemently disclaim the imposition in my article by the editors the phrase "comprised of"! "Comprise" means to embrace or include and using it in place of compose is to use the antonym of comprise, changing its meaning to the opposite meaning intended. So, Morgan Stanley comprises Smith Barney and Bank of America comprises Merrill Lynch.
    Jun 24 11:09 AM | Likes Like |Link to Comment
  • Municipal Bond Mark-Ups: Measuring 'Reasonable' [View article]
    waldipup, the link you furnished is for Morningstar's database, which, for munis, provides less information than the direct source of price info, the MSRB's EMMA site. If folks wish to see where municipal bonds have traded, the link is:
    Apr 17 03:40 PM | Likes Like |Link to Comment
  • Municipal Bond Mark-Ups: Measuring 'Reasonable' [View article]
    Thank you, waldipup, for taking the time to read my article. The "platform" you described used by Zion's is likely one of three that have grown in popularity among dealers. These include BondDesk, TradeWeb, and MuniCenter. These platforms have improved the availability of bonds to investors and have improved the distribution of bonds for dealers, but, don't be fooled, they have not necessarily improved pricing.

    When a dealer chooses to advertise their inventory holdings on one of the "automated" platforms, they have already marked the bonds up from the price they paid to someone else, so the problem of occasional fat mark-ups isn't ameliorated. Moreover, platforms do not relieve muni investors from the threat of low bidding when they sell their bonds prior to maturity. Often, investors will simply accept whatever bid price their broker quotes when selling bonds, assuming the market is the market, and failing to take advantage of competitive bidding.

    One of the great challenges that will always face market participants, including sophisticated muni investors like bond funds and money managers, is the fact that the body of oustanding municipal bonds is highly heterogeneous. Not only is price-discovery based on comparing apples to oranges, it's also like comparing them to lemons, cabbage, watermelons, pork chops, granola bars, and processed cheese, not to mention other fixed income choices. This is where the guidance of a very knowledgeable broker or money manager is extremely valuable. Platforms can't do this.
    Apr 17 09:07 AM | Likes Like |Link to Comment
  • Municipal Bond Mark-Ups: Measuring 'Reasonable' [View article]
    rl1856, thank you for the added note about carry, and you make an excellent point regarding the demise of monolines. While my "model" was not so precise, I was referring to "carry" when I made mention of "trade finance" among the component costs. In my experience as a muni trader, it was a very rare instance in which traders were surprised by credit events like PR or Detroit. Such credit situations often unfold slowly over time (WPPSS bonds in the 80's and more recent events like Jefferson County and Harrisburg PA come to mind) and the muni market is very good at adjusting spreads as they go. It was my experience that the Street was always pretty close to credit developments and this was quickly reflected in their bids (it's not uncommon for some firms to refuse to bid on such credits, at some point.) Given the relative stability of the overall market and the high correlation of yields/prices for good credits (and any one dealer's overall inventory), such developments would not seem to meaningfully and regularly increase carry costs. Moreover, looks like call money for dealers is at about 2% currently, so in many instances, they are experiencing a positive carry rate, i.e., their cushion against loss is enahnced by the fact that they are earning more money on the coupon rate paid to them on their bond inventory than they are paying in financing costs. Dealer firms do indeed provide a valuable service by furnishing liquidity, but I do believe that too many providers take advantage of the simple fact that commission/sales credits/spreads/mark-ups are not disclosed for as long as a trade is done as principal. I believe strongly that riskless trades should be done as agent with the mark-ups/sales credits disclosed.
    Apr 16 11:04 AM | Likes Like |Link to Comment
  • Municipal Bond Mark-Ups: Measuring 'Reasonable' [View article]
    Thank you for the endorsement, Seeking Alphalfa. I would like to clarify one point: I do not necessarily agree that Schwab and other online and discount firms do a great job with "pricing" because I think of pricing as related to execution price, not commission charges or mark-ups. It has been my experience that online and discount brokerage firms often do not do a good job of trade execution on munis, largely because I have seen evidence that their client-facing brokers are not knowledgeable about munis or the muni market.
    Apr 15 03:08 PM | Likes Like |Link to Comment
  • Zions an early casualty of Volcker rule [View news story]
    Mist J, you are completely right on. Classifying the variety of Zion's securities that are affected as "held to maturity" is inappropriate. Under accounting rules, such a classification allows the bank to avoid disclosing the true unrealized gain or loss condition of the securities. Given the relative unpredictability of cashflows from these securities and the relatively illiquid nature of the market for them, their market value changes can be safely assumed to be wide-ranging. Classifying them as "available for sale" is the more appropriate choice as under this status, their unrealized gain or loss must be disclosed. Moreover, these gains or losses must be reflected on the bank's balance sheet, and, if unrealized losses should be deemed to be "other than temporary", as can often be the case with illiquid securities, any changes in market value must be added to or deducted from earnings. In simple terms, classifying CDOs as "held to maturity" is hiding the ball. I would add that their auditors should be taken to task as well for allowing this choice.
    Jan 10 10:30 AM | Likes Like |Link to Comment
  • Hidden Treasure In This 7% Tax-Free Yield Play [View article]
    One risk that was not identified was the risk of losing your purchase premium over NAV if PIMCO does successfully refinance the outstanding ARS. Also, should short term rates rise, this will impinge on the dividend value of the fund's leverage, thereby affecting the NAV, i.e., it will go down. Though the SA article mentions this obliquely, but it should be contemplated that if short term rates are rising, it will be due to Fed action in response to rising inflation, which in turn means higher long term rates, as well. In this scenario, it could be expected that a parallel yield curve shift would ensue (both short and long term rates moving up.) In a leveraged fund, this would be bad news as the NAV would drop quickly as the value of the underlying bonds declined. A fund portfolio with a duration of 9 years would lose about 18% if longer rates went up 200 basis points. While this does not approach the 29% cushion calculated by the author and thus trigger redemptions, it will whack the NAV.
    Jul 24 09:54 AM | Likes Like |Link to Comment