Municipal Bond Forum
New to muni bonds
Q
We are retired, have zero tolerance for risk and are looking into bonds. Right now, we’re earning 5.6% interest on our CDs and they are expiring. Of course rates are way lower now. I saw your ad in our newspaper for the North Texas Tollway muni bond at 6.04%. Sounds too good to be true, which worries me. Who rated this bond? Is it insured? What does it mean that it’s non AMT? It’s selling for 99.5, which, I think means it’s selling at a discount and is better for me, right? Is the 6.04% interest rate a fixed rate? Is interest paid semi annually? Do you charge a fee? For example if I bought $50,000 in this bond, what is my cost and interest mailed to me? If I decided to sell this back to you in a few years, what is your fee for that? Is this bond super low risk?
A
James A. Klotz responds:
The NorthTexas bonds to which you refer are rated A2 by Moody’s and A- by Standard & Poor’s Corp. These particular bonds are not insured and are payable solely from the revenues of the toll road.
We also offer North Texas Tollway bonds, which are insured by Berkshire Hathaway Assurance Corp. Because of the insurance enhancement, these bonds are awarded a rating of Aa1 by Moody’s and AA+ by S&P.
Non-AMT means that the bonds are not subject to the Alternative Minimum Tax, if you pay your taxes by this method.
When buying a bond, “yield” is the significant figure. The dollar price is merely a function of the coupon rate (which is fixed), and the yield which reflects the return on your investment.
All of our prices are net to the investor. There are no additional fees or charges.
Long-term bonds, however, are subject to market risk. Over the life of these bonds, it is likely they will sometimes be worth less than you paid for them and sometimes more. The price you receive, if you sell the bonds prior to maturity, will depend on market conditions at that time.
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The responses provided in this forum are meant to address specific questions posed by investors about their municipal bonds and to provide market insight for our general audience. Please note, your investments, objectives, results and experience may differ significantly. Our answers and any potential strategies discussed should not be construed as a solicitation to buy nor sell any security or investment product. All investing entails risk.