Municipal Bond Forum

I own a few bonds insured by Berkshire Hathaway. How do we as bondholders know if the $8 billion the company still insures is part of my portfolio? Furthermore, if they are not, who would pay should the bond default?

D.A., Washington

Regarding your article, “Pension Reform: A Welcome Sign for Bondholders,” the problem isn’t with pensions per se, it’s including overtime as part of the pension benefit. Police salaries in many California cities run at the $400,000 mark, while base pay is about $100,000. Pensions should be based solely on base pay. We do not need to throw out the baby with the bath water, just reform the system. A cap on pension pay, similar to the max imposed on Social Security benefits, should also be imposed.

A.

You discuss the advantages of premium bonds in your article, “The Smart Buy in Today’s Market,” but if the bond has an extraordinary call or a sinking fund provision, the figures don’t look quite so rosy.

J.B. Florida

I understand the point you made in your article, “The Smart Buy in Today’s Market,” comparing a premium municipal bond yield to a new bond selling at par yield. How does the IRS require that I account for a premium on my tax return?

W.B., Pennsylvania

I’m 65 and I want to move some of my portfolio into bonds. How do I guarantee the lowest possible commission on the purchase and sale of bonds?

T.D., Florida

Interest from Build America Bonds (BABs), sold from 2008 to 2010 as part of the federal stimulus package, is 35% subsidized by the federal government. What would happen to the interest and principal if municipalities that issued BABs run into financial problems? Do the feds back the principal, and would they allow these municipalities to declare bankruptcy and even default?

M.M., Tennessee

What is the definition of YTM that you used in your discussion of premium bonds, “The Smart Buy in Today’s Market”?  I’m interested in the capital loss realized when the premium bonds are sold: Does it show up in your calculation of YTM?

R.C., Connecticut

I will have sizeable returns from maturing bonds soon. As a senior citizen, I would like to reinvest these returns only where federally insured. What might you suggest?

D.A.

Are there some states that prohibit their municipalities from declaring bankruptcy? If so, which states, and what alternatives do such municipalities have when faced with adverse economic conditions?

N.M.

Do you foresee a municipal bond “bubble” developing as the race for after-tax yield accelerates, especially given the boomer retirement demographic starting to play out? In other words, are investors overlooking the risk to buy a good after-tax income flow?

R.B.