I don’t believe failed auctions have happened before. I think the issuers would buy up the issues rather than have a failed auction. In any case, I agree that this is not a guarantee and there is still a risk.

While the muni fund has minimum NAV fluctuation, muni ARS has NO price fluctuation. After deducting for state taxes, both are yielding the about same right now. However, muni ARS might have some additional risks in view of the possible insurer downgrades.

I intend to revisit this whole issue soon.

One risk of this type of security is the risk of a failed auction, that is, that an auction fails to find a market-clearing interest rate due to lack of buyers. When this happens, the interest rate is reset to some amount specified in the original issue, which is likely reasonably high. While that might be nice to receive, it could mean that you’d be trapped in the ARS until buyers could be found, in other words, you could lose liquidity.

In light of the specter of ratings downgrades or outright failure of some of the bond insurers, I’ve become concerned about the effect that a loss of AAA rating might have on the liquidity of these investments. So when you say you can “easily get out of the resets in a matter of less than a week”, hmmm.

Like all MMFs, the yields of resets will fluctuate from time to time. So this is nothing new. I already stated the reasons (in my opinion) in the earlier post why I expect resets to yield more on average than MMFs. So far this has been the case; and if this turns out to be false some time in future, there is no cost to get out since there are no CG or commissions involved.

There are more knowledgeable people on resets/ARS at FWF. You might also get more opinions there.

Like MMFs, the yields vary. For MMFs, the yields change every business day. For 7-day municipal resets, the yields are changed every 7 days.

Should it be 3.8% for the first week and unknown for next week and the weeks thereafter?