Municipal Bond Forum

My compliments on your excellent article, “Avoid Headline Hysteria.” I would add one supporting observation: An advisor with a nationally syndicated radio show, whom I otherwise respect, repeatedly advises his radio listeners to avoid long-term municipal bonds because their market value will decline when interest rates rise. At the same time, in the same broadcast, he will tout lifetime fixed annuities from insurance companies as a sound part of some retirement income strategies. Am I missing something here? A long-term muni bond fills the same place in the retirement portfolio as a fixed annuity, can be 100% tax free and can be sold if emergency lump-sum cash is needed or if the owner dies and leaves the bond to his heirs. A fixed annuity is entirely illiquid and is only partially tax-free. There are a menagerie of provisions for heirs, but they all reduce the return to annuitant. And those fixed annuity payments are no less vulnerable to inflation than are the bond coupon payments. AAA-rated long-term munis are available with better than 5% tax-free returns. It’s hard to find a fixed annuity that does as well, and none of them offer the full return of principal at maturity that the bond does. Do I have all this right? I can’t see any case where one would prefer a lifetime fixed annuity to a long-term muni bond.

D.L., Arizona

I have been reading your articles for the last two years and I enjoy the practical, no B.S. information you provide. I have an account with your company and Patrick Gonzalez does a fine job.

B.A., Indiana

I sold $1.2 million in various AAA munis in the last four months. I bought at the bottom and my capital gains equaled three to four years of interest. I had to take it before taxes rise; now I’m waiting to get back in. I’m less than thrilled with picks from my bank/brokerage and their lack of knowledge. They put me in high risk bonds without telling me. Is there a fee to open an account with you? Can I trade munis? Are you an order taker, or do you give advice? I am 46, and have never been more fearful about all markets.

B.A.

We live in the Villages, Florida. Villages bonds have been issued as municipal and are now being questioned as to the legality of their municipal status. If these bonds are determined not to fit the requirements for municipal bonds, what will be the consequences for the bondholders?

G.M., Florida

I read an article more than a week ago in The Bond Buyer about plans by the IRS to audit many Build America Bond issues and the government’s push for issuers to track primary-market trading and pricing. Could this affect the bonds I bought in the secondary market?

E.L., Florida

I’m not sure if you’ve specifically addressed this already, but I am interested in knowing which muni-bond categories are the safest. A recent article in Smart Money suggests General Obligation bonds are the safest, but then goes on to say “bonds backed by water or sewer fees” (revenue bonds) “are usually safe.” I’d like to know which categories to avoid.

S.D., Connecticut

I just read an article about how employees from the leading credit rating agencies knew about the dangers in subprime mortgages but gave them the seal of approval anyway. I find this distressing. They rate the bonds, and if they can’t be trusted, what good are their ratings?

D.W Phd., California

Will any of the new taxes in the just-passed healthcare bill have potential impact on the income from municipal bonds?

K.F., Ohio

Assuming interest rates stay steady, do you think muni prices will rise when tax rates rise?

B.W.