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 1-800-367-2663 or e-mail us.
With the recent bailouts and apparently more to come, do you think the increased debt will lead to spikes in higher inflation? If so, would you recommend deviating from an income strategy of purchasing long-term municipal bonds that produce higher yields? If so, what strategy do you suggest given our current economic climate and possible significant expansion of future debt?
H.F., Alabama
I understand that when buying individual municipal bonds, I need to be aware that bond prices drop when interest rates rise. However, it occurs to me that the situation might be different for a municipal bond fund. In that case, wouldn’t the fund be buying new bonds as old bonds are retired? Therefore, it seems to me that the net effect would be for the bond fund price to remain relatively constant. Do I have that right or am I missing something?
D.D., California
I’ve been eyeing closed-end ETFs like Nuveen’s NKR, where tax-free yields are around 7%. I’ve made only a token investment there so far, but I’m thinking of investing more in similar funds. Your article on closed-end funds gave me second thoughts. How much do you think an investor should risk in leveraged bond funds?
D. L. , Arizona
Is there a correlation between the stock prices of bond insurers and their ability to pay claims? Ambac’s stock price is below $2.00 per share. Does this in any way jeopardize its ability to pay claims?
K. H., Indiana
What if we invest in California municipal bonds and find that we have to withdraw some or all the funds? Is there a penalty?
E.F.
What is the latest news on the Freedom Holdings case? And how about this new ruling by the Supreme Court on Dec. 15 regarding the light cigarettes suits going forward? Will these rulings lower the prices of tobacco bonds? Do you think they can recover along with the rest of the muni market as the economy heals?
S.W.
Considering California’s budget and economic issues, what is your opinion regarding a portfolio consisting primarily of California long-term general obligation Bonds? Hang on to them or sell?
P.W., California
Assume that you are 70, retired, have more than $1 million in liquid assets and would like a fairly safe return over the next five to 10 years. What are your top candidates to buy now or keep on watch? I am not requesting a recommendation on a specific bond.
J.W.
Given the news that I saw on TV, is it possible that if the state of California runs out of money – as it claims it may – that it will not be able to continue to pay the interest on the state general obligation bonds?
B.G.
Given the turmoil in the muni market since the eruption of the financial crisis, do you still think the same about munis or are you concerned, specifically, in states like New York, where such a significant portion of city and state revenues come from Wall Street? Are municipal default risks rising or am I just unnecessarily fearful that a state like New York will not be fine, in terms of munis?
R.C., New York
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