October 15, 2020

How to Profit From Stripped Municipal Bonds

Investment in the stock market is one of the hardest things to do in many people’s lives. As a consequence, it seems like we are constantly looking for more successful ways of making investments in capital. Investing in excluded municipalities is one of the best ways to make money. On this article, I’ll talk about what they are and how you can gain from stripped municipal bonds.

Stripped Munis are bonds that appeal particularly to people in very high taxes who also know exactly when they need their money. Much of the time it is available at maturities of under one year, most of the time up to 30, which gives you a lot of room for investment decisions. It’s also different to municipalities with zero vouchers, which often have higher dates.

Stripped Munis are never callable, which in the right conditions is also a great advantage. They don’t pay interest; they are rather sold to their facial value at an excellent discount. If the bonds are finally due, the full face value of the municipal bonds is paid, as well as the big difference between the discount price you paid and the maturity is the profit.


Such bonds are at great risk, as there are rarely large markets for them, compared to some other bonds. In most cases that means that when you buy them, you generally have to keep them until their maturity, and in many cases you won’t be able to sell them earlier in another market. This might not be such an enormous deal, especially if it is not mature in the future.


However, what are these elements? Yeah, I should’ve already explained this! Stripped Munis are some form of pyramid structures for law enforcement. Instead of selling those bonds to their investors they keep it up and instead sell what we call striped municipalities at various maturs (which they produce from a thin air). They will buy up a lot of standard municipal bonds. They will not sell them. The brokerage then uses the initial bond premiums as they are paid out over time on the debited bonds. Maybe it’s not really right to name them legal pyramids, but you get the idea.


The main explanation why broker companies do so is because they usually convert the standard municipal bonds with a longer maturity to the stripped Munis with a shorter maturity and since they are able to stagger the original bond purchases, they will still pay for stripped bonds.


It is therefore essentially a financially engineered vehicle that allows you to benefit from long-term bonds in the short term. You can note several different cities that have been stripped, including those with prefunded bonds, those that have excellent triple-A general bonds, and the insured municipalities that have been stripped.


Stripped munis offers you tremendous versatility and multiple options you can not afford through standard municipal bonds. Because of this, I like to advise anyone who asks. But make sure that, like all investment decisions, before making any final decision, you do your own homework on these bonds.

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