Barron’s painted an alarming picture of municipal bonds. What are your thoughts?
A.B., Florida
Barron’s paints bleak picture
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Municipal Bond Forum
FMSbonds, Inc.’s Municipal Bond Forum is an exclusive opportunity for investors to submit questions and comments on the bond market or to respond to one of our articles.
To participate, just send us an e-mail. Be sure to include your name or initials and your state of residence. Posted e-mails may be edited for length and clarity. If you prefer a private response, please note that in your e-mail. Responses are provided by James A. Klotz, president and co-founder of FMSbonds, Inc., a municipal bond specialist for more than 35 years, and other members of the firm as noted.
Postings are listed by date. If you have any questions, please call us at 1-800-FMS-BOND (1-800-367-2663) or e-mail us.
GO vs. revenue bonds
I own a Pembroke Pines (FL) GO bond. In a small community like that, does the fact that it’s a GO vs. a revenue bond mean anything?
S.M.
Government subsidizes BAB interest payments
Since the federal government is guaranteeing some of the interest on Build America Bonds (BABs), is it also guaranteeing the principal?
H.B., Maryland
A client’s ‘exercise’ idea for muni investors
As the market falls below 10,000, I do an exercise you may want to pass along to other FMS customers: Each morning I bend over, kiss my behind and thank the almighty I have tax-free bonds.
L.S.,Texas
Individual bonds vs. bond funds
As a rank amateur, I’m trying to decide whether to take my money out of the Vanguard high-yield tax-exempt bond fund and buy a bunch of individual municipal bonds as a ladder for the next five years. According to my interpretation of your writings, perhaps I should just stay put. Any comments?
J.C.
‘Old soldier’ successfully manages his own money
I’m a 65-year-old retiree who has been in the tax-free bond market for the past two years and wish I had done it long ago. Peter Jacobs, my bond specialist at FMS, has always gone above and beyond to make sure that I understand what I’m buying and has helped me tremendously. I manage my own money and buy what I’m comfortable with. Hat’s off to FMS and thanks again for making a believer out of an “Old Soldier.”
D.H., Florida
Safety First
We are an elderly couple (80 and 79 years old) who are trying to decide where to invest $200,000 in order to generate income. Our main concern is safety of principal. We have very little knowledge of bond funds, individual bonds, etc. and especially bond insurance.
J.E.
Decline in muni supply would lead to lower yields, higher prices
“Clearly, with BABs reducing the supply of tax-free munis while higher tax brackets heighten demand, it is not difficult to predict that investors buying high quality tax-free bonds yielding 5.00% or more today will be very pleased they did.” Seems to me the reverse is true: Diminished supply of tax exempts and increased demand for them will lead to higher prices and lower yields for muni investors. BABs are a disaster for tax-free investors. It’s the classic example that causes inflation – too much money chasing too few goods.
B.S., North Carolina
Reliability of rating agencies
This is not a rhetorical question: Why should anyone believe the ratings agencies – the same fools who rated pure baloney as “AAA” before the crash?
R.W., Virginia
Impact of tobacco shipments on bonds
An article last year in the Journal of Structured Finance analyzes cigarette consumption and the potential impact it could have on tobacco muni bonds. It shows that long-term smoking is likely in more of a decline than tobacco settlement revenue data indicates, which could seriously impact the muni bonds’ ability to pay. What is your opinion?
S.W.
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