Industrial Revenue Bonds have a variety of names and purposes, but there are three basic types of bond issuances as follows:
o Tax Exempt - (Small Issue IDB's) Because the income derived by the bond holder is not subject to federal income tax, the maximum bond amount is $10 million in any given jurisdiction. According to federal regulations, the $10 million total includes the bond amount and capital expenditures over a six year period going both backwards and forwards three years. The maximum any company may have is $40 million nationwide outstanding at any given period.
o Taxable - They are not exempt from federal tax. The essential difference is that the Taxable bond rate is more costly to the borrower and not being subject to the federal volume cap, may exceed $10 million in bond amount.
o Exempt Facility/Solid Waste Disposal Bond - These bonds are subject to volume cap although there is no restriction on amount and the interest on these bonds is federally tax exempt.
These types of bonds are issued frequently by municipalities for a variety of industrial projects, including the construction, rebuilding, improvements, remodeling, etc. of the industrial project. The purpose of such bonds, according to 445/3, is to "encourage the increase of industry and commerce in the State." The Illinois Municipal Handbook states that the issuance of such bonds is subject to many federal statutes and regulations and they recommend seeking advice of bond counsel.
In order to pursue this, a resolution authorizing such would need to be adopted. The bonds may be issued in series and must mature within 40 years from their dates. Nonetheless, there is no liability on the interest or principal of the authority issuing those bonds. Municipalities would also be responsible for establishing, collecting, and revising revenues for the purpose. Finally, these bonds may be sold at a private sale and issued without a referendum.
Nicolosi & Associates - Attorneys at Law Since 1948. Skilled in the law. Experienced in business. http://www.nicolosilaw.com
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Friday, March 23, 2012
Saturday, November 26, 2011
Zero Coupon Bonds
Bonds that are bought at a deep discount and pay no rate of interest are known as zero coupon bonds. These securities will mature at a larger face value than the price it was bought at.
These investments offer growth within a bond, but they do not offer any current income. These can be found in funds and annuities, since many of those assets are long term.
Taxation
Tax is normally paid each year on the earned interest from zero coupon bonds. This is also known as phantom income, so there is no taxation advantage to them unless they are bought into an IRA or other tax deferred account.
Investment Risks
Fiixed income investments and bonds that do not have a coupons or nominal yields have little or no reinvestment risk. The term reinvestment risk refers to an investor having to deposit or invest their interest payments received from other securities. When interest rates are low, this risk can be amplified. However with 0 coupon bonds - that issue is minimized by the fact that no payments are received until maturity. Since Zeros are usually longer term - this risk is even less realized.
Treasury STRIPS are also Zero coupons. T Strips are Government guaranteed bonds that have no interest paid until the end. Also municipalities and corporations offer them.
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These investments offer growth within a bond, but they do not offer any current income. These can be found in funds and annuities, since many of those assets are long term.
Taxation
Tax is normally paid each year on the earned interest from zero coupon bonds. This is also known as phantom income, so there is no taxation advantage to them unless they are bought into an IRA or other tax deferred account.
Investment Risks
Fiixed income investments and bonds that do not have a coupons or nominal yields have little or no reinvestment risk. The term reinvestment risk refers to an investor having to deposit or invest their interest payments received from other securities. When interest rates are low, this risk can be amplified. However with 0 coupon bonds - that issue is minimized by the fact that no payments are received until maturity. Since Zeros are usually longer term - this risk is even less realized.
Treasury STRIPS are also Zero coupons. T Strips are Government guaranteed bonds that have no interest paid until the end. Also municipalities and corporations offer them.
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Wednesday, August 3, 2011
Bond Portfolio Management
Municipal bonds should be a part of most individuals investment portfolio. This is especially true for those in a high tax bracket as Municipal Bonds are tax free at the federal level.
Portfolio Management
Investment Portfolio Management
Most full service brokerage firms offer full or active portfolio management for their investors. The investment management could include, stocks, bonds, funds, insurance, and estate planning.
Having a firm provide investment management for their clients gives the investor a full line of products and allows the person to have their entire portfolio safekept by own firm.
Active
When a broker or advisor is involved in active management, this normally means the investor is frequently investing or changing assets. It also could mean the firm is involved in every financial asset the client has. See also Asset Management
Bonds and Fixed Income Portfolio
Many large investors or institutional clients like Banks and insurance companies have large holdings of bonds and other fixed income product. The active management of these portfolios include seeing the maturities of these investments, and managing interest rate risk.
A good bond money manager will work to ladder out maturities to make sure their is limited interest rate exposure and offering management of the cash flow from these bonds. A fixed income portfolio specialist will also survey the entire market for the best product available through many broker dealers. This is especially important when dealing with municipal bonds - since most of those are held by firms in each state.
New issues of mortgage backed securities and corporate issues should also be part of most large bond product holdings.
Portfolio Management
Investment Portfolio Management
Most full service brokerage firms offer full or active portfolio management for their investors. The investment management could include, stocks, bonds, funds, insurance, and estate planning.
Having a firm provide investment management for their clients gives the investor a full line of products and allows the person to have their entire portfolio safekept by own firm.
Active
When a broker or advisor is involved in active management, this normally means the investor is frequently investing or changing assets. It also could mean the firm is involved in every financial asset the client has. See also Asset Management
Bonds and Fixed Income Portfolio
Many large investors or institutional clients like Banks and insurance companies have large holdings of bonds and other fixed income product. The active management of these portfolios include seeing the maturities of these investments, and managing interest rate risk.
A good bond money manager will work to ladder out maturities to make sure their is limited interest rate exposure and offering management of the cash flow from these bonds. A fixed income portfolio specialist will also survey the entire market for the best product available through many broker dealers. This is especially important when dealing with municipal bonds - since most of those are held by firms in each state.
New issues of mortgage backed securities and corporate issues should also be part of most large bond product holdings.
Sunday, July 24, 2011
Muni Bond Yield
Learning to calculate a bonds rate of return or yield starts with understanding the different rate indicators involved. Bond yields are based on the coupon rate, the price paid and the maturity length of the investment.
The 3 key interest indicators are: Nominal Yield, Current Yield, and Yield to Maturity.
Nominal
The Nominal rate or coupon rate is the fixed interest rate on the bond. This is the rate that the issuer pays to par value. It is fixed, it never changes and it is only paid to par. Par is the amount of bonds you own. This yield may or may not be your total net rate of return. If the bond was purchased at a premium (above par), then your overall yield to maturity will be lower than your stated coupon rate.
If a bond has a 7% nominal yield or coupon and was purchased at a premium of $103 ($1030), then your YTM will calculate lower because the 7% interest is only paid to the $1000 par. The $30 premium does not earn interest and is not redeemable at par. So, a 7% bond at a premium is not really "yielding" 7% in that example.
A bond purchased at a discount will have the reverse affect on yield. The Yield to maturity would be higher for a discount bond, based on the fact that you are still earning interest on par even if you paid under par. The overall YTM will calculate higher for a bond.
Yield To Maturity
The most important rate of return indicator is a bond's yield to maturity. The YTM factors in everything to give the true overall yield to an investor.
It examines the nominal yield, current yield and years to maturity. The overall rate of return can be effected by the length of time the bond is held. If a 4 point premium was paid on an 8% bond, but the bond has a maturity of 15 years, that yield will be different than if the bond was only good for 2 years.
How to calculate yield to maturity:
This is done by using the key components of a bond: the coupon rate, the price and the years to maturity. A 5% bond priced at $850 and maturing in 15 years would calculate as follows:
Yearly Coupon Interest = $50 (5% paid to $1000)
Total Discount = $150 ($100 par - cost of $850)
Annual Discount = $10 ($150 total discount divided by 15 years)
Average price - $925 (difference between $850 and $1000 par)
Add the $10 annual discount to the coupon payment of $50. This gives you $60, which is divided by $925 and that will give you the yield to maturity of this bond - 6.49%
American Investment Training
The 3 key interest indicators are: Nominal Yield, Current Yield, and Yield to Maturity.
Nominal
The Nominal rate or coupon rate is the fixed interest rate on the bond. This is the rate that the issuer pays to par value. It is fixed, it never changes and it is only paid to par. Par is the amount of bonds you own. This yield may or may not be your total net rate of return. If the bond was purchased at a premium (above par), then your overall yield to maturity will be lower than your stated coupon rate.
If a bond has a 7% nominal yield or coupon and was purchased at a premium of $103 ($1030), then your YTM will calculate lower because the 7% interest is only paid to the $1000 par. The $30 premium does not earn interest and is not redeemable at par. So, a 7% bond at a premium is not really "yielding" 7% in that example.
A bond purchased at a discount will have the reverse affect on yield. The Yield to maturity would be higher for a discount bond, based on the fact that you are still earning interest on par even if you paid under par. The overall YTM will calculate higher for a bond.
Yield To Maturity
The most important rate of return indicator is a bond's yield to maturity. The YTM factors in everything to give the true overall yield to an investor.
It examines the nominal yield, current yield and years to maturity. The overall rate of return can be effected by the length of time the bond is held. If a 4 point premium was paid on an 8% bond, but the bond has a maturity of 15 years, that yield will be different than if the bond was only good for 2 years.
How to calculate yield to maturity:
This is done by using the key components of a bond: the coupon rate, the price and the years to maturity. A 5% bond priced at $850 and maturing in 15 years would calculate as follows:
Yearly Coupon Interest = $50 (5% paid to $1000)
Total Discount = $150 ($100 par - cost of $850)
Annual Discount = $10 ($150 total discount divided by 15 years)
Average price - $925 (difference between $850 and $1000 par)
Add the $10 annual discount to the coupon payment of $50. This gives you $60, which is divided by $925 and that will give you the yield to maturity of this bond - 6.49%
American Investment Training
Sunday, July 17, 2011
Yiled to Maturity
This is a bond's total rate of return during the full life of the investment. The yield to maturity factors in the nominal rate or coupon, the price paid and the length of the maturity.
The YTM is the most important yield indicator for a bond investment. It factors in the nominal yield, bond price and length of maturity held.
When investors buy bonds, the coupon rate is important, but if the bond price is higher than par - the yield to maturity will be lower. If the bond is bought at a discount, the yield to maturity will be higher.
The nominal yield (coupon) is a fixed rate that is only paid to par value. All bonds redeem at par as well. So, if the investment is purchased below or above par, the yield will be different.
The YTM is actually the current interest rate on a particular bond or similar bonds. If a 7% bond is availale, but interest rates are actually only 5%, the broker or the market will price that bond higher (premium) - to reflect the current interest rate environment. The broker is not going to sell a 7% bond at par when interest rates are 200 basis points lower. A premium will be the market.
If the interest rate climate on these bonds is 5%, the security will be priced for a yield to maturity of around 5%. So, the investor is really getting a 5% overall rate of return on this bond, if held to maturity - even though the nominal yield is 7%. Interest is never paid to a premium or discount. It is only paid to par.
From American Investment Training. More on the link below
Bond Yield
The YTM is the most important yield indicator for a bond investment. It factors in the nominal yield, bond price and length of maturity held.
When investors buy bonds, the coupon rate is important, but if the bond price is higher than par - the yield to maturity will be lower. If the bond is bought at a discount, the yield to maturity will be higher.
The nominal yield (coupon) is a fixed rate that is only paid to par value. All bonds redeem at par as well. So, if the investment is purchased below or above par, the yield will be different.
The YTM is actually the current interest rate on a particular bond or similar bonds. If a 7% bond is availale, but interest rates are actually only 5%, the broker or the market will price that bond higher (premium) - to reflect the current interest rate environment. The broker is not going to sell a 7% bond at par when interest rates are 200 basis points lower. A premium will be the market.
If the interest rate climate on these bonds is 5%, the security will be priced for a yield to maturity of around 5%. So, the investor is really getting a 5% overall rate of return on this bond, if held to maturity - even though the nominal yield is 7%. Interest is never paid to a premium or discount. It is only paid to par.
From American Investment Training. More on the link below
Bond Yield
Tuesday, March 8, 2011
Trading CMO
Collateralized Mortgage Obligations differ from pass through securities in that they have different types of paying bonds within the CMO. There are many types and tranches to evaluate - each with it's own bond risk.
A CMO has different payment timing risk depending on the type of bond you own. Some offer more protection than others from prepayment or extension risk. These bonds have a more predicatable duration to the bondholder vs. a pass through agency bond. Some CMO's can pay off faster than others.
Learn much more on investing and trading these bonds. Free Info through American Investment Training
Thursday, August 13, 2009
Triple tax free rule - tax exempt state bonds
Buying municipal bonds within your own home state qualifies for the investment to be triple tax free. That means no federal, state or local taxation. Muni Bonds are normally tax exempt on the interest earned federally - at your ordinary income tax bracket. This rule or allowance is meant to promote investing within your local municipality.
Municipal bonds and notes are issued by state and local governments. These municipalities include:
States
Counties and Cities
Towns and Schools
Municipal Authorities
Interest payments on traditional municipal bonds are exempt from federal tax. They are subject to state and local tax.
Tax Free Yield
When looking to purchase muni bonds, a person should understand how tax exempt yields work. The higher the tax bracket, the higher the yield. If an investor is considering buying a 6% municipal bond at par and they are in the 28% tax bracket, the tax free yield would be higher than 6%. The formula is: Municipal stated rate or coupon divided by 100 minus the tax bracket.
The calculation would break down like this:
6% divided by 72 (100-28), which equals 8.33%. This means that to achieve a better return than this 6% coupon bond, you would need equal to or better than 8.33% in a taxable investment. A lower tax bracket would show a lower tax free yield.
$5100 into $40,000 Trading FOREX HERE
Municipal bonds and notes are issued by state and local governments. These municipalities include:
States
Counties and Cities
Towns and Schools
Municipal Authorities
Interest payments on traditional municipal bonds are exempt from federal tax. They are subject to state and local tax.
Tax Free Yield
When looking to purchase muni bonds, a person should understand how tax exempt yields work. The higher the tax bracket, the higher the yield. If an investor is considering buying a 6% municipal bond at par and they are in the 28% tax bracket, the tax free yield would be higher than 6%. The formula is: Municipal stated rate or coupon divided by 100 minus the tax bracket.
The calculation would break down like this:
6% divided by 72 (100-28), which equals 8.33%. This means that to achieve a better return than this 6% coupon bond, you would need equal to or better than 8.33% in a taxable investment. A lower tax bracket would show a lower tax free yield.
$5100 into $40,000 Trading FOREX HERE
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