Municipal Bond Forum

I imagine Chicago’s plan to increase cigarette taxes, which you discussed in your article, “Clouds Darkening for Tobacco Bonds,” will cause problems for Illinois tobacco bonds. I purchased Erie, New York, tobacco bonds, rated BBB/BBB+, first tranche taxable. The maturity date is 2028 but they pay faster as all principal reductions for the bond issue go to the first tranche. Are you concerned about these types of bonds?

S.Y., Maryland

In your article, “Clouds Darkening for Tobacco Bonds,” you don’t mention the status of tobacco bonds that are insured. I have California tobacco bonds insured by BHAC. Should I be concerned?

R.G., Texas

I need a means of measuring the likelihood of problems with Puerto Rico bonds. A power and light company generally sounds OK as long as consumers can pay their bills. But would hard times in Puerto Rico be that much different than hard times here in the states?

R.S., New Jersey

Everybody is dumping Puerto Rico bonds because 13.5% unemployment is so high. Thus, people are moving out of Puerto Rico and it is declining in population. Don’t you think this could be dangerous for investors?

L.B., California

We nearly had a default of U.S. obligations because of the choices made by representatives of several states. Given their willingness to allow a U.S. default, is there a default risk premium built into state and local bonds?

I.P.

I wonder, how does your firm select the bonds on your offering list? It does not seem to be very large or comprehensive. Do you offer these bonds based on their qualities?

Y.D., California

I’m 83 years old and have never invested in bonds. In the past, I’ve been in stocks and mutual funds, but in 2009 I sold everything and invested in CDs. With the level that CD rates have dropped to, I’ve been thinking of bonds. My principal concern is loss of capital as a result of rate increases. My secondary concern is length of term. Can you give me any advice?

J.T., New Jersey

If I buy munis in my IRA, are they free of all taxes, even when I die? Do my heirs get them tax free? Is there a difference in tax burden if they are in California, where I live, or another state?

B.H., California

Regarding your article, “Embrace the Headlines,” I do not believe one can compare California with Puerto Rico. Yes, California had problems, but it has always had a thriving state economy and is now running a surplus, where Puerto Rico never has been. I’m just thankful I chose to not buy Puerto Rico bonds.

N.S., California