I wrote about using municipal reset bonds (“resets”) as a cash management vehicle in a recent post. Yesterday, I had my first success in a municipal resets auction. I submitted bids for resets with the following characteristics:
- Issuers in different areas of the economy.
- Issuers backed by different insurers.
- No federal, state, local taxes. No AMT.
- 7-day resets.
- AAA-rated by both S&P and Moody’s. Additionally, they passed Fidelity’s “Risk Test” and are ated as “Tier 1″.
- Have both “sinking fund” and “call” protection.
The bids were successful, and returned with an average coupon yield of about 3.8%, paid every week. This computes to an APY of (1+0.038/52)^52 – 1 = 3.872%.
For comparison, the table below shows the yields of various cash management vehicles as of September 5, 2007:
Clearly, the municipal reset bonds give me a 15 basis points increase in after-tax yield over the next competing product (Fido’s CA AMT-free MMF). The advantage over Vanguard’s CA Tax-Exempt MMF is around 26 basis points.
PS. The numbers are specific to my particular tax circumstances, which includes AMT; your numbers would differ.