MuniLand

Want muni bonds? Get to a bulge bracket firm

By Cate Long
April 8, 2011

WTC in progress Want to get some of the tax exempt bonds that are funding Silverstein Properties Inc.’s rebuilding of the new World Trade Center site?

Good municipal debt offerings, like hot IPOs, are usually reserved for clients of the underwriting syndicate.

Equity IPOs get all the press but it’s new muni bonds which are quietly allocated to the “high net worth” accounts and left there to spin off a multi-year stream of interest.

Clip some coupons anyone?

Goldman Sachs is planning to lead the underwriting of $900 million of  Silverstein bonds next week. The bonds are expected to yield ~5.11% for 30 year bonds. Comparable US Treasuries are paying ~4.64% and their interest is subject to federal taxes.

Standard & Poor’s has rated the offering AA-, a high investment grade rating.

If you a resident of New York City this might be a very attractive investment for you. But if you are not a client of one of the underwriting firms then your chance of getting any of these bonds is basically zero.

The access is private although the bonds are public.

Bloomberg published an excellent article about alternative discount investing platforms today. These clever new services help investors allocate their savings across multiple asset classes. Many seem to provide useful toolsets.

But none of the low cost platforms offers access to newly issued municipal bonds. You need the “special access” offered by one of the major investment banks who dominate the municipal business.

The Bloomberg article quotes Jim Wiggins, a spokesman for Morgan Stanley Smith Barney:

“People don’t come to Morgan Stanley Smith Barney for discount trading,” he said. “They come for professional money management and to access some of the products and services that are only available through a global investment bank.” He declined to provide the range of fees full-service brokerage customers pay.

The Federal Reserve publishes a triennial account of US household financial assets. The most recent Survey of Consumer Finance gives us data through 2009. Bonds (both municipal and corporate) are mainly concentrated in the top 10% of households. These are the investors at the bulge bracket firms.

So generally if you want prime municipal bonds it’s best to call up a bulge bracket brokerage house. And get in line.

Photo: agreatbigcity

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