Municipal Bond Forum
Why market insight matters
Q
I own Detroit General Obligation water bonds insured by National. My financial adviser told me that as the city’s problems wind through the courts, Detroit won’t pay timely interest and only my principal of $40,000 will continue to be insured by National. The price of these bonds stands at 86.999 as of July 22, 2013, and continues to go down every day. Your thoughts?
A
James A. Klotz responds:
Municipal bonds don’t seem to be your financial adviser’s area of expertise.
First, we can tell you that Moody’s upgraded National Public Finance Guarantee Corp. to “Baa1” on May 21, 2013, with a “stable outlook.” National also enjoys an “A” rating by Standard & Poor’s Corp.
If your financial adviser says National will pay principal but not interest on these insured bonds, the market does not agree. Your bonds are insured for the timely payment of principal and interest, as are all insured bonds. If the insurance company wasn’t deemed creditworthy and obligated to pay the interest, the bonds would be quoted at a considerably lower price. Today, these same bonds traded between dealers at over 90.00.
Start here.
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This report is produced solely for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. This report is based on information obtained from sources believed to be reliable but no independent verification has been made, nor is its accuracy or completeness guaranteed.