Municipal Bond Forum
On “Hidden Gems in the Muni Market”cont’d #4
Q
In reading your latest strategy, I was surprised you did not urge purchasers of “premium munis” to call their FMS representative before purchasing just to make sure that those bonds do not contain “hidden surprises” in the way of extraordinary calls, which might not be accounted for in the worst case yield. One example comes readily to mind: housing bonds, which may be called at any time. This is not theory as we have lost premiums over the years to unexpected calls.
A
James A. Klotz responds:
You are correct. Single-family housing bonds are a different animal because they are “subject to special redemption” and can be called anytime at 100.00 due to pre-payment of the underlying mortgages supporting these securities. Multi-family housing bonds, however, do not fall into this category since there is typically only one mortgage supporting the entire project.
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