Municipal Bond Forum

With the selloff of municipals, particularly those issued by Puerto Rico, there was been a reduction in the market value of individual bond portfolios. I think this is panic selling by bondholders fixated on the events in Detroit and Stockton. I don’t think these people belong in municipals in the first place. While no one wants the value of their portfolio to decline, this should not be a paramount consideration for bondholders, who get it all back upon redemption.

N.M., New Jersey

Can you use municipal bonds in an IRA?

C.M., North Carolina

What is your view on the likelihood of Puerto Rico defaulting on any of its bonds – general obligation, highway and electric, etc.?

R.Y., Connecticut

Is your strategy always to buy the best yield possible and hold? Is there ever a reason to sell or wait to buy for better yield? In the current environment, conventional wisdom says that I should construct a bond ladder, don’t go too long in search of yield, etc. But if I am buying for income and a better return for the amount of risk, is there an argument for buying shorter-term munis, maybe less than seven years?

K.K.

The insight in your article (“Amid Detroit Crisis, a Key Player Emerges“) applauding the virtues of bond insurance brings to light that with the exception of AGM, National and BAM, all other bond insurers are still in a serious financial state. This is largely due to their ill-advised venture into insuring toxic mortgages. Would you care to comment?

N.M., New Jersey

“Buy-and-hold” strategy — impacted by the Detroit bankruptcy?

S.T., Washington

Excellent article (“Investors in Michigan Munis Strike Back“), clarifying the unintended consequences of the Detroit approach to bankruptcy. In addition to the obvious chilling effect this is having on the municipal bond market in Michigan, I reckon it is also having a negative impact on the broader muni bond market. If the current plan goes through, it is a game changer for muni bonds everywhere.

M.H.

We are New York residents. Currently, our muni bonds are decreasing in value. Since January 2013, our portfolio has lost about 3% of its value. Our advisor has instructed us to stand pat as we are still receiving dividends. What would you suggest we do?

C.M., New York

Do you think, theoretically, that the muni market would be better off, or at least far less volatile, without muni mutual funds? Watching outflows from munis based solely on what amounts to an equity-market mechanism seems to negate much of the advantage of owning munis. Fund managers start selling to cover potential redemptions, and share prices fluctuate like a roller coaster, having nothing to do with the underlying assets.

P.H., Oregon