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.
On “Hidden Gems in the Muni Market”cont’d #5:
Purchasing premium bonds with a yield advantage to the call as well as to maturity will always provide the best value available. When a premium bond matures at par and you paid over par, don’t you get a capital loss? Would that be another advantage for buying premium bond as long as you adhere to the first sentence?
P.Z., Florida
On “For Income Investors, It’s All Bull”cont’d #2
You wrote: “Today, investors can still buy investment-grade tax-free bonds yielding 4.50% to 5.00%. These returns are comparable to 6.92% and 7.69% on a taxable investment for an investor in the highest tax bracket, and 6.25% and 6.94% respectively in the 28% tax bracket.” What short-term bond is paying 5% tax free?
V., California
On “For Income Investors, It’s All Bull”
I read your article and cannot agree with your investing principals. First, I own PIMCO shares, which have the lowest returns in my portfolio. So far this year, my cash flow is up 33% by buying (mostly bond funds) at their lows, drawing the 8% to 10% returns and selling when they hit “premium” status, which produces a little bonus. I then do it all over again. My broker is exceptionally adept at picking discounted bond funds that are poised to climb and also have a good return (7.5% and up) We have checked the tax-free stuff and can’t find one that will keep up with what we’re doing. I don’t know bulls from bears when it comes to investments, all I know is that I buy low and sell high only those investments with 7.5% return (rent for using my money) or better. When the shares hit a high, I collect my bonus and many times, less than one week later, I buy the same shares at a discount. The year so far has been on fire. I hope we can maintain the pace through the last quarter. You might want to re-look at your advice to investors. To my thinking, you are losing a lot of profit for your clients.
R F., Oklahoma
Closed-end funds (cont’d)
I just wanted to see if you would acknowledge the value of closed-end funds (CEFs) that pay 100 basis points more annually than comparable bonds, given your continual encouragement to buy long bonds for income and ignore their price fluctuation, and the futility of trying to guess on rates. Apparently, you will not do so, even outside of the Bond Forum. I guess I understand that this would amount to shooting yourself in the foot with respect to your business, so I certainly understand your position. Your comment about preferred shares makes no sense – one can buy the short-term preferred paper at any time. It is not reserved for institutions. I think what I’m doing – combining individual munis with CEFs for a yield boost, including buying an occasional bond from your company – makes a lot of sense.
A.L., Georgia
State-income tax equivalent yield
I just checked out the site. It is very good. I will probably open an account in the coming weeks. Do you have a formula that can be used to factor state income tax to determine tax equivalent yield? Also do you have a formula to consider when it makes sense to buy munis when someone is paying the Alternative Minimum Tax?
P.
How prices are listed
I was just looking at your unit trusts listing and I’m a little confused. When the bond price is $102, as an example, 15 units should cost 15 times $102 or $1530. Your site shows $15,300. That means the bonds are selling for $1020 per unit instead of $102. Can you please show me where I am miscalculating the cost?
F.L.
Priced too high?
I may have to look for other investments. Bonds are getting priced too high.
K.F., Ohio
On “GM Turnaround Hits High Gear”
I own bonds at FMS that mature in 2030, but I am not a bond expert. Although I consider myself a somewhat risk-tolerant investor, wouldn’t it be a more prudent strategy, if one is looking at total yield (income plus growth) to purchase a company’s stock rather than downgraded bonds that yield 8% to 10%? I am thinking of both the upside and downside potentials here. On a stock, one can also put a stop-loss order at a certain level and limit the downside potential, while the upside potential is infinite. With bonds, if the company defaults on payment, you’re SOL, and the upside potential is limited to the bonds’ yield, unless the prevailing interest rate diminishes.
S.P., South Carolina
On “GM Turnaround Hits High Gear”cont’d #2
Why haven’t S&P and Moody’s seen fit to reevaluate their ratings on GM bonds and debt? I know the average investor feels that a traditional, old-time corporation such as GM will never file Chapter 11, but as you said, no risk, no reward. Thanks for your great commentaries.
B.P., Florida
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