Liquidated half of my municipal reset bonds

This morning, I placed a call to the Fidelity Fixed Income desk and requested them to liquidate half of my municipal reset bonds. The rep was very friendly and helpful. I read out the CUSIP numbers to him, he repeated them back to me and the sale orders were submitted.

Three hours later when I logon to the Fidelity website, I noticed that the bonds were succesfully sold. The trades will settle tomorrow. There were no transaction fees.

What prompted my sale was partly due to the recent troubles with the bond insurers, but the main reason was that I am getting closer to the time when I need to use the money. I will be moving the sale proceeds into the Fidelity CA AMT-tax free money market fund in the mean time. I intend to sell off the rest of the bonds when they reset next week.

Update 12/06/07:  All my municipal reset bonds have been liquidated. There were no issues with “failed auction”.


  1. DJ

    I am confused. I thought the reason that you went into the municipal resets in the first place was higher yields without expense. What changed since your last post here
    ? Why you suddenly wanted to go back to Fidelity CA AMT-tax free MMF?

  2. indexfundfan (Post author)

    Hi DJ, when I went into municipal resets, I didn’t really intend them to be a long term holding. I wanted to keep a certain sum of money liquid because I need to use the money in a few months. The time has now almost been reached. But because of the recent troubles with bond insurers, I decided to cut short the holding period and go into MMF now instead of waiting for a few more weeks.

  3. Miserly Bastard

    Hey I came across your posts on resets as a cash management tool, and I’ve been considering stepping into them (rather than the VG NY MMF). I’ve had about 100k kicking around in a reset for a few years now, just so I watch the asset class. But recently, I’ve been thinking about moving more money to resets, despite the bond insurance problems. If you stick with GOs and not project bonds, and provided the underlying sovereign is creditworthy (i.e., NYC), I see this as a free 20-30 bps, maybe more if you’re willing to take on AMT resets (we generally dont get hit by the AMT). Im curious about your second thoughts, as you seem to have gone in/out pretty quickly–cold feet?

  4. indexfundfan (Post author)

    Good question MB. Actually, I need to use the bulk of the money I had in resets now, so it was probably a matter of when I would get out of them. Once I accumulate more assets, I might buy them again.

    Resets might be kind of a “free lunch” now because of the knee-jerk reaction to the bond insurance problems. There was also a small inconvenience factor with 7-day resets because I had to track and update the distributed dividends in my Money file every week. But I guess this should be gone if I use 30- or 35-day resets.

    Another consideration is that some considers the bond or fixed income portion to be a safety anchor for the portfolio. So, risk should be minimized in the fixed income portion. Not sure if resets would qualify if there are bond insurance issues. To get more expected returns, simply adjust the equity portion upwards.

  5. Miserly Bastard

    Hmm, I’m not sure if I follow all of your explanation for why you went in/out so quickly, unless you’re just saying you needed the money.

    I think muni resets are a good deal right now. According to one broker I spoke with, the price talk for the upcoming 35 day auction next Wed is 3.6% to 3.8%, which if you assume it clears at 3.7% would be fabulous compared to the 3.3% 7-day yield on the VG NY MMF. (I think most of these are revenue bonds, however, not NYC GOs).

    I’m not sure the 3.7% number is real, however, since according to Fidelity’s inventory, I’m seeing NY resets more in the neighborhood of 3.5%-3.7%. But whatever, 30 or 40 bps on 2 or 3 million is real money. There is definitely a premium over MMFs right now, for reasons I’m not sure I entirely understand.

    More interestingly, the most recent auction of some Battery Park bonds we own, we received an auction rate of 4.75% That’s crazy. I checked with two brokers, who said this was just dealers getting stuff off their books for the year end, and that the 2008 auctions would normalize. My wife ran the CUSIP through Bloomberg and we couldn’t find any negative reasons. So whatever, I sort of like these securities now.

    If you can get comfortable with the underlying credit, I think they’re a good deal now. I’m probably going to blog about this in the near future.

  6. Mo

    We just got a rate of 5.464% on a Battery Park 35 day reset we’ve had for some time.
    Great rate, but do you think the reward is worth the risk?

    The auction went thru but we are seriously considering pulling out after this 35 day period ends. Is there a risk between now & then? The broker says no, but I’d like to hear it from you guys.

    Also, what do you think the long term risks are for this bond?


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