Municipal Bond Forum

Great article on Puerto Rico, “Puerto Rico Governor Unveils New Budget Plan.” But why did you refer in the last sentence to the governor’s plan as perhaps providing “a ray of hope”? I thought the upgrade earlier this year of Assured Guaranty, which insures some Puerto Rico bonds, was already “a ray of hope”?

B.P., Florida

When I hovered over California on your tax map, it showed 50.83% as the top total income taxes. Are you aware that the top state tax rate in California is 13.3%? If you add 39.6% federal and 3.8% tax on top of that, you get 56.7%.

R.B.

I think tax-free municipal bonds are a great investment and I have a number of them. But are they right for an IRA? I have to pay taxes when I withdraw from my IRA anyway, as ordinary income. Is there a better “taxable” investment that makes sense for an IRA?

P., Arizona

The city of Detroit, under the emergency management of Kevyn Orr, is attempting to treat general obligation municipal debt as unsecured. At stake and under consideration by the court are the terms “promise” versus “tax obligation.” Do you have any thoughts on the safest states?

V.A., Nevada

I hold Puerto Rico munis with a 15-to 25-year maturity timeline. What exactly happens if Puerto Rico munis were to be restructured? Would a restructure automatically involve all munis issued by the Commonwealth, or could revenue bonds stay outside of a restructure? By revenue bonds, I’m referring to COFINA (sales tax), PRASA and PREPA (utilities) bonds.

I have a large portfolio of California municipal bonds with an average yield of about 5.20% and eight to nine years in duration. In the current interest rate environment, what maturity dates and quality would you recommend for additional purchases? I would like to obtain yields of close to 5.00%, but I’m concerned about buying long maturity issues if interest rates rise. Also, you talk about “longer-term” bonds. Are you referring to 30-year bonds only or 20 to 30, etc.?

L.C., California

I’m a long-term individual bond investor with a goal of getting a minimum of 5%. California bonds are selling at a very high premium right now. I’m sitting on some cash and wondering what next year might bring in terms of rates and prices.

E.G., California

I like your articles, but stocking up on long-term bonds and paying par plus a premium to get maybe 5% yield with investment grade ratings is setting yourself up for a big loss of principal when interest rates increase, and they certainly will at some point over the next 20 years. You also assume that the issuer will remain solvent over the entire 20 years. I’m a fixed-income guy, but it’s tough these days to rationalize all these variables and go out 20 years or more.

J.G., Florida

Suze Orman (“Suze Orman, James Tisch on Common Ground“) didn’t address the concern that if interest rates go up, a purchaser may regret not waiting to get the higher rate. It may be that it’s still better than the 1% taxable at an FDIC-insured institution, and that a bond purchaser can always hold back some funds and ladder. And, of course, there is no perfectly safe, highest rate guaranteed investment. Bonds are a good part of a balanced portfolio, but Suze’s assessment is very limited.

V.L., Florida