Municipal Bond Forum
Don’t let Fed’s moves obscure why you buy bonds
Q
I liked your article on the Dow’s recent rise past 11,000 and how it first broke that mark 11 years ago, and I see the logic of it. I have a nice size portfolio of long-term bonds, most of them purchased through your excellent broker, Michael DeStefano. Now I am worried. With the Fed pumping so much money into the economy and then buying Treasuries, what’s the effect on long-term municipal bonds, especially if municipalities cannot pay their bondholders? Bonds have provided a good income for me and enabled me to bridge the gap because of my forced retirement six years before I was eligible for Social Security. Now that I am on Social Security, I do have money to invest, but I’m not sure it should go in bonds because of the Fed’s policies.
A
James A. Klotz responds:
Thanks for your kind words. We are also pleased with Michael.
Unfortunately, it seems there is no shortage of things to worry about today.
However, you need to remember why you bought your bonds in the first place: the tax-free income!
Theoretically, the Fed buying bonds should help keep long term interest rates down. If this practice leads to inflation, as some fear, the market value of your bonds might suffer but this will not cause your bond interest payments to be interrupted.
Start here.
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