There is a very interesting class of municipals that you may not know about.
They are called “variable rate demand obligations” (VRDOs).
Moody’s estimates the market size at about $380 billion or 13% of the $3 trillion municipal market.
Moody’s issued a report today saying that this class of munis is finding its sea legs. This is good news for muniland. The health status of VRDOs was a big concern for market participants and Moody’s is cautiously optimistic.
VRDO’s are bonds issued with longer maturities (up to 30 years) that you can put back to the trustee or tender agent with a little notice.
The interest rate on the VRDO is usually reset weekly and generally is slightly better than a money market rate.
VRDOs require a bank or lending facility to stand in as a backstop in case investors want to put their VRDOs back to the tender agent. And issuers pay for this guarantee.