Municipal Bond Forum

I own some Jefferson County bonds that are insured by Ambac. They last traded around mid-November at about 88 to 90. I have no idea if they will make their next interest payment in February, or if they will be redeemed at par in 2015. I am confused how the bankruptcy affects my bonds. Can you give me any info or guidance?

W.L., Florida

Of concern is the Obama Administration’s proposal to limit the tax advantage of owning municipals only to those individuals in the lowest income tax brackets. If such a proposal becomes law, it would, most assuredly, adversely impact the municipal market in general. Has FMS expressed a position on this significant matter?

N.M.

What makes a high quality bond? How do you search for them? How can you trust anyone in the financial markets these days?

A.R., California

What do you think about muni managed funds like Blackrock’s MYD? It currently yields around 7.5% tax free, and 38% of the money they use is leveraged at these very low current interest rates. Yes, there is a management fee of over 1%, but they still throw off a net monthly income of over 7.5%. P.S. I’m one of your customers!

J.M., Florida

I welcomed your article about misconceptions in the muni market. As a muni investor, I’m concerned that the government will find ways to change the game and beleaguered states will default or look at Chapter 9. I still invest in high quality muni bonds and usually include bonds with insurance, if possible (no guarantees there either!). But I don’t sleep well and remain concerned as to the future of these investments and our ability to work out our challenges without making bondholders look like evil people stealing money from “Joe the plumber.”

D.W., Florida

What effect, if any, will the municipal bankruptcy of Jefferson County, Alabama, have on its bonds?

B.G., California

Happy to buy and hold I buy and hold, go out at long as I can on callable dates and buy at least 5% yields and insured bonds. At first, I laddered to generate monthly income, but did well on the rates. Now that I have good monthly income, I just go for insured bonds with the best rates regardless of the date due on interest payment. Sound OK?

G.P., Oklahoma

Why do you suppose investment specialists don’t recommend munis as an investment option? Do they think they’re only for the rich? I have been investing in tax-free bonds for 30 years and have done quite well in the process. When I was younger, I held my money in CDs. After a few years of paying additional income tax on the interest, I decided there must be a better way. I saw an ad in the business section of the paper and have never looked back.

J.E.

Our article, “Jobs Bill Misfires in Attack on Muni Bonds,” resonated, not surprisingly, with many investors. Here is a sample of comments from bondholders across the country. N.R. in Texas: “‘Not in my backyard’ and ‘I don’t want to get involved’ are cliches that resound with utter selfishness. If we are ever to stop the pain, pain-free parties need to suffer so that we are all on board to correct the malaise, not just the ones we like least or hate the most.” T.B. in Georgia: “If it is limited to those with more than $1 million in munis, it would hardly ripple the surface. Let the class war begin here!” F.S. in Florida: “Why is there is no chance of the bill passing when Democrats control the Senate and the president does not know what is good for the economy? Hopefully the country can get a new president.” B.T., Colorado: “Unfortunately, the government is going after anything and everything. As a muni investor for more than 30 years, I am glad you are speaking out.” M.M. in Missouri: “I have been waiting for the tax-free muni market to come under fire, but I don’t believe this will ever happen. It would be a disaster for states depending on money for infrastructure projects.”

Most of my munis are in Texas, where we have no state income tax. I do have bonds in Tennessee, Colorado, California and Wisconsin, which do collect state income taxes.  I need to know what the standard deduction is in each state so I know if I even need to file and how many more bonds I can reasonably own in each state without creating tax reporting tasks for myself.

D.T., Texas