Municipal Bond Forum

I put $160 per month in a Rochester muni bond fund. It charges high management fees. I want to switch to a Vanguard muni fund to save on these fees, since all bond funds are similar in their investments. True?

P.D.

In April, I invested in high-yield muni bond mutual fund and have gone in the hole on them. I don’t understand why. I haven’t made a thin dime on them. Can you advise me on when I can start getting a yield on my money?

E.A.

How do I obtain current information on issuers of bonds I’m interested in? S&P ratings are helpful, but what are they based on and how current are they? There seems to be no ongoing analysis similar to equity research. I’m interested in the Puerto Rican Sales Tax zero bonds and bonds issued by the Tenn. Energy Acquisition Corp.

T.G., Tennessee

I own some Puerto Rico transportation bonds. When I bought them, they were rated “AAA” because they were insured. Now they are rated Baa3 because the rating on the insurance company is dismal. The bonds still trade near par and the yield is good. What are the risks of holding these bonds?

R.K., Maryland

We’d like to build a new stadium for a municipal government and have them lease it from us. Is there a way to accomplish this with tax-exempt bonds?

B.K., Indiana

Charles Rangel, D-N.Y. has just introduced a housing bill that would permit tax-exempt bonds to be guaranteed by Federal Home Loan Banks and permanently exempt mortgage revenue bonds from the alternative minimum tax. How likely is it that the bill will be passed, and if passed what effect will it have on both existing municipal bonds and those that are issued in the future?

S.K., New York

I was surprised by your Bond Forum item (“Disappointed in closed-end bond fund”, 3/3/08). I believe your statement that closed-end funds are experiencing a wave of redemptions is not quite accurate. The basic premise of a closed-end fund is a finite number of shares and to trade in the market at a price that is either connected or disconnected to the net asset value of the fund. Should someone wish to sell their share, they do it in the marketplace. At times, there may be more sellers than buyers or buyers than sellers, which can cause the discount to widen or narrow to the net asset value. As a registered investment advisor who specializes in the closed-end format, we have found that our selection of closed-end funds can and does beat benchmark returns over longer periods of time or an interest rate cycle. Diversification is a key ingredient that closed-end funds afford the individual investor along with professional management. Purchasing a fund at a discount further adds to current returns. Tax efficiencies are more profound that individual bonds. The auction rate preferred shares used for leverage have been involved in failed auctions, which can create a higher cost of leverage for the funds, but is starting to stabilize according to historical averages.

S.T., New York

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?

D.D., Maryland