wassy said: The real deal is that the rates are not set by Citi or Fidelity, or any firm for that matter they are set by the issuers.

I think you need to learn or look up what an "Dutch Auction" is as the issuers does not set the rates on ARS. It is an Auction just like with T-Bills. ALL ARS rates are set by Dutch Auction. Cash Management products who rate is not set by an Auction is VRDN but thoses are institutional cash management products.

wassy said: ALL are about the same. the reason that some issues appear higher today is because the reset dates might be different.

Again I dont know where your getting your information from either. Looking at both Fidelity and Citibank ARS from today. Fidelity range on Ca tax-free/AMT Exampt 7 day range from 3.05-3.43%. Citibank range on the same issue is from 3.08-3.31%. Interest rate is determinded 100% by auction if 1 issue has more agressive bidding than others that day the rate will be much lower on that issue. Citibank range on 7 day taxable ARS is between 5.02-5.26%.

Also you keep talking about ARPS which are debt sold on closed end mututal funds which can not be compared to Muni/GSE ARS. I would not buy an ARPS/PARS if you paid me 10% you know how many ARPS or PARS have defaulted? 1 in last 5 years. Do you know how many Muni or GSE ARS have defaulted? None in 20 years. I dont want to buy leaverage debit from a bond fund. I prefer to buy debit directly from a Muni/GSE who in general dont default because they have taxing authority even if they do default like OC, CA they end up paying everyone back at par. You only loose the interest due from time they file BK till they pay you back your capital and not your capital itself.

wassy said: Money Markets try to get their yields reflected high for print in the papers so you put money with them. Also, they re jigger their portfolios as their maturities roll over.

Again sorry to disagre with you but by law MMF are not allowed to hold PARS, ARPS, or Muni/GSE ARS because they require an auction to be held and you need to find a buyer at auction to get out of your position. While there has never been a failed auction it is possible.Tax-free MMF by law either hold Muni Short term discount notes avaible from all investments banks or VRDN which has demand insurance so you can get in or out at any time and Taxable MMF holds GSE/Corp short term discount notes or taxable VRDN. For example Citibank Private bank sells VRDN with T+1 and BOA requires T+5.

Most of these instruments are sold in either $25,000 or $100,000 increments. I have not seen $5000 on these yet, but it is possible Fidelity or others might internally break them up. THey are book entry anyway, so they never leave in physical form. They might also not transfer from one firm to another in odd lots. Worse, however, is that if the issue is transferred, the new firm probably won't be willing to redeem it at your request, since $5,000 is not a valid tradeable qty. remember, they trade in $25k and $100k denominations.

Again not sure were your getting your information would like me to post underwriting docs for 10-20 issues that allow min investments of $5K and because it allowed by the underwriting terms of the Bonds does not matter if the underwritter get bought by another bank/brokerage firm they must honor underwriting terms. Also almost most ARS have min $25K buy in. Most of the ones that require $100K min are 1 day resets and even thoses a lot of them really only require $25K but Fidelity or Citibank raises the min purchase amount on there own. BTW all of Citibank issues trade in $25K blocks. Fidelity and Etrade tho offer a couple of issues with that do trade in $5K blocks. Every underwritter is free to set the terms of ARS when they underwrite the bond.

If you look at Fidelity rates today they are much lower than they were yesterday. Biggest drops were on the 1 day paper but 7 day paper that resest on friday tends to reset lower normally too. basically it because people are moving there cash into these instruments ahead of the weekend. Thus the bidding is more agressive. If you look at some of the oder history there are people buying blocks larger than $1Million on some issues. You will see on monday rates will go up again to 5.25%+ for taxable and 3.40+ for tax-free.

On my screen the 5.40% APR resets are 50K minimum but that is still pretty hot. Rated AAA by both agencies gives me confidence, thanks OP.

2 Questions:
When I look at the Fidelity new offerings today, there are ARS with a "last auction date" that go as far back as JUL 2006 for short-term (7 and 28 day resets). Why would the last auction for these be so long ago when they are supposed to be reset? (oddly, when I look at the "recent trades" data, it seems that these same ARSs have been bought and sold repeatedly over the last few weeks).

Also, where can I find info on payment schedules for these ARS instruments? i.e. how/when interest payments are made (I assume each security has its own schedule) There doesn't seem to be any info regarding this on the Fidelity site. If I buy an ARS on the reset date and sell it on the next reset date is interest accrued, or paid when I sell? If I sell between payment dates, do I get a prorated interest payment later (and lose the opportunity to earn interest on my interest until I am paid), or do I sell the security at par plus accrued interest to the next buyer?

Everything I am looking at on Fidelity's site seems to be safe AAA rated short-term liquid instruments, but are there any differences between issues (other than rate and reset frequency) that need attention. I realize that there are differences between taxable/tax exempt, state-specific, and AMT issues we discussed before. But, if I'm considering two Illinois federal/state tax exempt ARS that are not subject to AMT, and both have the same reset frequency and both pay the same rate, should I be looking at any other factors?

Thanks dolmar, always appreciate your input/expertise

dolmar said:wassy said:Again sorry to disagre with you but by law MMF are not allowed to hold...Muni/GSE ARS because they require an auction to be held and you need to find a buyer at auction to get out of your position. While there has never been a failed auction it is possible.

Do you know what liquidity facilities are?</blockquote>

RichTJ99 said:This is great information indeed.

Here is a question though. If the ARS generates a commission for the broker, and the VRDN generates a far less commission, why doesnt everyone invest in the VRDN's (aside from the minimum)?

The rates are typically higher in the VRDN (right?).

Variable Rate Demand Notes

Yes VRDN= Variable Rate Demand Notes

First off you need an investment banking account at an investment bank like Goldman Saks, Beer Sterns etc or a Private Bank account at like Citigroup, BOA, Chase or Wachovia as no other bank underwrite these issues. If you shop ARS from a Place like Fidelity, E-trade, Scwaab or any other discount brokerage firm the rates on 28 or 35 ARS will come close to VRDN or could reset even higher at times. Problem you have is you are dealing with one of the most expensive broker in the world. And you think your going to get a deal from them. SB Brokers are on commision and they get no salary so why would they want to tell you, find or sell you VRDN as there is Near to nothing in commision for the broker. Do you think your broker works for free? Do you work for free?

2nd opening a Private bank account requires either having a large bussiness account or a very large bank account. Normally $2-5 Million cash/brokerage depending on the bank. And again they are not full service brokers like SB. Private bank is no different that E-trade or Fedility or any other discount brokerage. They wont tell you what to buy. You have to tell them what you want to buy.

Here are a couple of VRDN listed on Citigroup Webpage.

59259NML4 METROPOLITAN TRANSN AUTH N Y DEDICATED TAX FD RFDG-SER AAA no insurance tho. Today Reset 3.52%
64982PSG8 NEW YORK ST DORM AUTH LEASE REV MUN HLTH FACS IMPT-SER 2-2 AAA Insured. Today Reset 3.45%
47206NAD4 JAY STR DEV CORP N Y CTS FAC LEASE REV NYC-JAY STREET PJ-SER A- AA no Insurance Today Reset 3.55%
64986MFA8 NEW YORK ST HSG FIN AGY REV 240 EAST 39TH ST-SER A unrated no insurance Today Reset 3.66%

Dolmar, is it possible to buy VRDN (at BOA/HSBC/CITI/etc...) without a 1-2mil $ investment banking account? I would like to get a decent state/fed tax-exempt return on 250-350k that will stay parked for a long time (i.e. not in and out/chasing a couple of basis pts every month). The liquidity facility of VRDN seems more appealing to me (slightly higher rates too). Or is buying ARS through Fidelity the only option with an account of my size?

Fidelity has an 28 day issue reseting for 5.43% while I understand it is only A2/A rated I dont think it going to default or anything any time soon. This ARS has $25K min.

A rate of 5.43% = an APY of 5.61% which is well above most savings account and even VRDN too.

Feuerball you are paying a lot more than $2000 in management fees on $1 million. You need to understand MMF funds are quoted in 7 day APY. ARS/VRDN/Discount notes etc as a matter of fact all bonds are quote as rate.

So an APY of 5.30% = a rate of 5.18%. Most institional MMF today are paying an APY between 5.25-5.29% while VRDN are paying 5.32-5.64% and Fidelity has a couple of 28 day ARS with min $50K buy in amounts paying a rate as high as 5.46% today. So that is really a difference between of 20-50 basis points. If you compare them to Discount Notes which pay a higher rate than VRDN the difference is 40-70 basis points.

VRDN have little to no risk as you can put them to underwriter at any time with no risk to priciple as longer as the underwriter does not file BK. ARS tho are subject to dutch auction so they have a little more risk but are still pretty much risk free as most ARS carry insurance and letters of credit from underwriter.