Municipal Bond Forum

I read somewhere that no loss is allowed when premium bonds mature. Is it because you’d be expected to earn more interest?

M.S., Arizona

Do you think current muni prices have been effected by proposals out there that would abolish the tax exemption for municipal bonds or apply a 28% cap on the exemption?

S.K., New York

“Regarding your article “Exemption Defenders Unite“, please continue to keep us informed on this activity as, I agree, it is an extremely vital issue.”  W.D., North Carolina

“I think your article is stupid and incites fear. Why did you send it? Should you be soliciting a protest or petition, I would support that.”  A.C., California

In your article, “Exemption Defenders“, you mention the idea of capping muni interest income at 28%. What exactly does that mean?

W.C., Virginia

I would be interested in your outlook on long-term Puerto Rico bonds, which are currently priced below par although they offer an attractive yield that may remain double tax-free.

R.C., Arizona

I heard a radio host say that pricing muni bonds is an art, not a science. How are daily prices determined? It would seem by supply and demand for certain issues.

C.M., New Jersey

In your article, “When Flexibility Counts“, you discuss how munis can be used in a tax swap. But isn’t the tax “advantage” neutral (other than a slight timing play)? You can take a capital loss by exchanging bonds that are down, but wouldn’t it be offset by the capital gain incurred when the new bonds are ultimately redeemed or sold?

F.M., Pennsylvania

Can you educate me about tax-exempt bond amortization? On a bond we bought years ago, we paid 108 per unit. When it came due, we got our 100 per unit back. I would have thought that I had an $8 capital loss because of the sale. But instead, through TEBA, I’m told that I have no such thing. Indeed, the cost basis is back at 100. Is there a relatively simple explanation as to why this is so?

J.H., Vermont

In light of recent bankruptcies in California, supposed experts have commented that other municipalities will find it less of a taboo. Isn’t the real problem behind a bankrupted municipality its inability to borrow? Why isn’t more being made of this point?

G.W., Michigan

Using the best rates that can be found, would you please explain if it is better to invest in zero coupon bonds or traditional bonds? Assume I would reinvest (likely in a savings account, until I have the minimum to reinvest in other bonds) the semi-annual money I receive from the traditional bonds.

J.P.,Pennsylvania