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Retail investors are finally provided with the quality investment services of the high-net-worth and affluent investors. Behold the dawn of a new era.
No longer must we buy inflation protected treasuries and I-Bonds directly from the government (with no sales charges) and hold them until maturity (with no ongoing annual expenses). There are now suitable alternatives.
June 20, 2011
Nuveen Introduces New Inflation Protected Municipal Bond Fund
CHICAGO--(BUSINESS WIRE)-- Nuveen Investments, a leading global provider of investment services to institutions as well as high-net-worth and affluent investors, today announced the availability of the Nuveen Inflation Protected Municipal Bond Fund (NITAX) to retail investors.
Woohoo!
Credit risk is heightened for the fund because it may invest in below-investment grade quality municipal bonds.
Woohoo!
The use of derivative instruments involves a high degree of financial risk, including the risk that the loss on a derivative may be greater than the principal amount invested.
Woohoo!
There can be no assurance that the fund’s inflation-hedging strategy will be successful.
Woohoo!
NUVEEN INFLATION PROTECTED MUNI
Prospectus Gross Expense Ratio: 0.97%
Woohoo!
Max 12b1 Fee: 0.20%
Woohoo!
Max Front End Sales Load: 3.00%
Woohoo!
ICE: Mortgage Delinquency Rate Increased Year-over-year in October
-
From ICE: ICE First Look at Mortgage Performance: Serious delinquencies hit
17-month high while foreclosure activity remains historically muted
• At 3.45% ...
3 hours ago
6 comments:
Clearly investors in the fund don't grasp that the difference between a MBS and this kind of derivative is that foreclosure takes a lot longer.
For the muni, that is. It takes 3 years before you can seize the property for taxes.
Who Struck John,
I'm certainly confused.
If a municipal bond defaults then what does that have to do with foreclosures?
In any event, I would certainly not consider my self to be a municipal bond guru. That alone would make me not want to invest in them. Tack on derivatives and I'm even less likely.
...the fund seeks a more tax-efficient approach to managing inflation risk primarily through its use of derivatives such as Consumer Price Index (CPI) swaps over Treasury Inflation Protected Securities (TIPS).
I want no part of that. All I know is that if all derivatives were priced accurately then for every derivatives winner there must be a derivatives loser. Derivatives are a zero-sum game.
They can hedge against risk, but I don't see how they hedge against nearly sure things (such as long-term inflation).
Here's what I think of when I see claims that derivatives will be used to track inflation over the long term.
United States Oil Fund (chart)
The investment seeks to reflect the performance, less expenses, of the spot price of West Texas Intermediate (WTI) light, sweet crude oil. The fund will invest in futures contracts for WTI light, sweet crude oil, other types of crude oil, heating oil, gasoline, natural gas and other petroleum based-fuels that are traded on exchanges.
Three words: Not Even Close
How does a muni get paid back? By property taxes, mostly. What happens if the taxes aren't paid? Well, after three years, the property gets seized and auctioned.
Compare with a mortgage, where foreclosure can start a lot sooner.
Both fundamentally depend on property values. Now, a city does have other revenues, and can paper things over longer. But if we're going to get another 20% drop in property values, I'm not liking munis. I'm really not liking derivatives of munis.
If I look at pension obligations of cities, and factor who got the haircut when GM and Chrysler got bailed out (hint, not the pensioners), and what that means when cities go bankrupt, I don't like munis at all, at all ...
Who Struck John,
Now I see where you were going with it.
In any event, I doubt using derivatives to hedge against long-term inflation risks is going to work. It requires investors on the other side of the trade to bet against long-term inflation. Further, it requires those same investors to remain solvent (counterparty risk) if long-term inflation appears.
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