Municipal Bond Forum

I read your recent article about the significant rise in muni prices (“Muni Market Returns Rise Amid ‘Gluttonous’ Demand”). My muni portfolio has done very well. But even though prices have gone up, reinvesting redemptions at 1.5% yield-to-worst isn’t very attractive. Since you frequently state that the main purpose of municipal bonds is to generate a stream of tax-free income, it doesn’t seem too lucrative. In hindsight, your advice to invest in long duration municipal bonds was a great strategy. What are your thoughts for new investors or someone whose portfolio is having a lot of calls and maturities?

B.C., California

What are the pros and cons of muni investment using mutual funds vs. individual issues?

A.

I’m 71 years old and looking to invest in municipal bonds. Should I still look at long-term muni bonds?

W.S., Michigan

You are spot on with your article, “Today’s Market Especially Cruel to Bond Ladders.” Unfortunately, I did fall for the short-term trap in 2016 when I bought corporate bonds. I rolled over an IRA and felt yields were on the low end of my range so I committed 70% of my capital to bonds maturing in 12 to 20 years and deployed the other 30% in a three-year, short-term fixed annuity. I thought yields would be higher in 2019 than in 2016. Now I have those funds at my disposal but yields have fallen below the level I’m comfortable with. I should have stuck with my 30 years of experience with munis and just committed my funds as they were available. Trying to predict the future direction of rates often ends badly!

J.T., Florida

I read with great interest your concerns about bond ladders, “Today’s Market Especially Cruel to Bond Ladders.” However, if long-term muni rates are about 3.00%, but today are only about 2.00%, then putting a portion into a ladder makes sense if you’re starting a long-term program today using a current lump sum. If, for example, one assumes that rates would start rising in five years then gradually plateau five years after that, wouldn’t it make sense to allocate some portion of the amount to a ladder between five and 10 years and the rest to an immediate commitment to a very long-term maturity, like 40 years? The main decision then would be the percentage allocated to the ladder portion.

J.F., California

You had an article awhile ago on tobacco bonds (“Better News Ahead for Tobacco Bonds?”) and I was wondering how they are doing. I am 76 years old and interested in income.

Y., Virginia

I chuckled when I read your article, “Today’s Market Especially Cruel to Bond Ladders.” I forgot this strategy even existed! The only thing certain about ladders is that they will reduce your net rate of return.

H.F., Ohio

What are Build America Bonds? Are they still available to be purchased? If so, are they a good deal?

In your commentary, “Interest Rate Reality,” you repeat the mantra, “look first for appropriate quality, then focus on yield.” You also advocate buying long-term individual muni bonds and holding them to maturity— great advice, if the bonds are not callable. The reality is that most, if not all, of the available bonds are callable, some within a year or two. Do you have any general guidelines on how to gauge whether a callable bond is or is not likely to be called?

M.M., Tennessee

Why do high-yield, tax-exempt muni bond funds act more like stock (equity) funds than bond funds? I thought bonds were supposed to move in a somewhat opposite fashion relative to stocks over time. My correlations don’t show this negative relationship.

J.B.