Municipal Bond Forum
Bond safety and the subprime mess contd #2
Q
I am 80 years old and have quite a few municipal bonds. What happens to these bonds in a recession or depression? I understand that there are tax-free money market-like bonds that mature weekly but can be rolled over until cash is needed. Is this true? If so, how does one buy them, and what does it cost to buy & sell them?
A
James A. Klotz responds:
We have been involved with the municipal bond market for over 35 years and have seen a number of recessions during this period. These recessions had virtually no impact on the high quality, tax-exempt bonds that you purchase.
We think you are describing what are called “floaters.” They are a type of mutual fund created by brokerage firms that provide higher short-term returns than available on money market funds.
They differ from money market funds because of restrictions governing the redemption of shares. We don’t recommend floaters as an alternative to bonds since they provide no call protection.
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