Municipal Bond Forum

Will my bonds be called?

Apr 13, 2006

I am new to your site and enjoy it. I have started investing in long-term munis with the idea of buy and hold. Since many of your articles/strategies seem to echo that philosophy, I couldn’t be happier. All of my bonds are, of course, callable, so my question is: What is the probability that the municipalities will call my bonds prior to maturity? Over the past, say, 30 years, what proportion of callable bonds have been called? What signals will alert me, say a year or 18 months in advance, whether my bonds are likely to be called?

J.F., California

Is shorter better?

Apr 10, 2006

I was under the impression that a tax-free municipal was just that – tax free. However, I have learned that if you are in the position that your social security benefits are taxable, any tax-free income is included when figuring your tax liability. What, if any, would be the advantage of a muni bond when there are so many other choices with better returns at shorter-time terms?

C.V., Michigan

Odd couple

Apr 5, 2006

I hadn’t realized that the states and big tobacco companies were now in bed together, hoping to keep their market share strong in order to collect big bucks. I guess we still have states supporting tobacco growers with subsidies so people will be employed, smoke, get cancer and die. Then the states can sue the tobacco companies to get money, and the more people smoke, the more money the states get. No wonder governments are incomprehensible. They can be – and are – squarely on both sides of the issue. I tried to explain it to a visitor from Europe but gave up.

R.A.

Report nontaxable income

Mar 24, 2006

I’ve heard that you don’t have to report nontaxable income, but I’ve also heard the contrary – that you do need to report the income on your federal tax return, although it is not subject to taxation. Which is correct? Thanks – I’m a customer and I like your Web site.

K.F., Ohio

On “Look Who Else Likes Munis”

Mar 20, 2006

On Suze Orman’s affinity for zero coupon municipal bonds: What about the AMT taxes she faces? Perhaps her wealth is now so much that she can afford peace of mind. But I don’t get the zero coupon muni bonds. She has a negative cash outflow because she still must pay federal taxes on the capital gains the bond have each year. To my knowledge, the government looks upon the appreciation in value as a capital gain, not interest income. Hence, is it a taxable event?

J.B.

Closed-end bond funds

Mar 20, 2006

Why would an individual not invest in leveraged closed-end bond funds and pick up an additional 50 to 100 basis points of yield rather than buying individual bonds as well as professional bond management?

A.L., Georgia

IRAs and munis

Mar 17, 2006

I have been retired since age 55 and done reasonably well on my investments. As I approach the magic age of 59 ½, I am considering moving some of my money into bonds with the hope of just living off the dividend income. Since the vast part of my investments are in IRAs, is there any advantage of buying municipal bonds inside the IRAs? I thought that the dividends that I would be taking might have some tax advantage.

R.T.

Tobacco consumption cont’d #2

Mar 17, 2006

If tobacco bond indentures include covenants that would sanction changes in their payment obligations if the MSA were modified, is it conceivable that government tobacco bond issuers might try to minimize payouts to better reflect tobacco firms’ reduced MSA payments? Would such bond indenture changes withstand legal challenges?

J.S.

Tobacco consumption

Mar 17, 2006

Cigarette sales have dropped, and because industry payments to states are based to some extent on the number of cigarettes sold, the states’ settlement revenue has dropped. States that were part of the settlement initially expected about $6.5 billion this spring, for instance, but the tobacco companies have said that they may be entitled to cut their payments by as much as $1.2 billion this year. Some of that decline would be the result of dropping sales, and some could come from other adjustments allowed under the settlement. Since state obligations under the tobacco bonds is limited to settlement proceeds paid by the tobacco companies, how would declining receipts impact the credit worthiness of tobacco bonds?

J.S., Washington, D.C.

More on “A Forward Strategy for the Inverted Yield Curve” cont’d #2

Mar 17, 2006

Long-term rates can always go lower, but can’t they also go higher? Are all the sophisticated investors on the buy side of long bonds and all the dummies on the sell side? And if all the smart people are buying long bonds, does that mean it’s the right thing to do? Last year Berkshire Hathaway lost $1 billion on its bet on the dollar. Can we really be comfortable with the thought that the probability of rates going to 2% is greater than them going back to 15% plus, like they were under Reagan? Threats from abroad have a financial and economic effect that the Fed and other institutions can’t necessarily control and we, as a country, are doing everything that increases the threats facing us from abroad. Doesn’t being long in bonds tend to increase these risks beyond what is appropriate for most muni investors who are in them for the safety and security of their principal?

S.F., Connecticut

1-800-FMS-BOND

1-800-FMS-BOND

Will my bonds be called?

Is shorter better?

Odd couple

Report nontaxable income

On “Look Who Else Likes Munis”

Closed-end bond funds

IRAs and munis

Tobacco consumption cont’d #2

Tobacco consumption

More on “A Forward Strategy for the Inverted Yield Curve” cont’d #2

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