some of your holdings. The three- to five-year sector may actually produce lower take-out yields than shorter maturities. It’s also becoming more evident that the banking industry is having a solid earnings year in spite of margin compression, so a loss-earnback extension swap may have some interest. Recall, too, that the TEFRA penalty (remember that little acronym?) will start to take a bigger bite out of your tax-equivalent yields as your cost of funds continues to rise. This is especially true for your General Market bonds, which have a much higher TEFRA hit than Bank Qualified munis. It’s déjà vu all over again and could be more reasons to at least temporarily allocate out of some tax-free bonds. On the other hand, 6%+ tax-equivalent yields are available now for those S Corps willing to invest for 20 years or so. Ultimately, the message of this column is that “munis matter.” If you’ve put that sector on autopilot because of perceived lack of value in the new issue market, take a look at your portfolio and ask your brokers for some bids on shorter maturities. You may find an inexpensive source of liquidity. Now that we’re refreshed on some of the finer points of municipal bonds, I’m thinking of Mark Twain’s observation: “A clear conscience is a sure sign of a bad memory.” www.bccadvisers.com ▪ ▪ ▪ ▪ ▪ ▪ ▪ Jim Reber (jreber@icbasecurities.com) is President and CEO of ICBA Securities, ICBA’s institutional, fixed-income broker-dealer for community banks. NEBRASKA INDEPENDENT BANKER 19
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