Municipal Bond Forum
Where opportunity is created
Q
I agree with your article (“Don’t be Negative“): Don’t wait. But what do we invest in – low coupons, big premiums and no returns? Oh, seer, what is the answer!
A
James A. Klotz responds:
Unfortunately we are not seers. If we had the ability to divine the future, a successful strategy for maximizing income would not be necessary.
We are, however, believers in buying good quality bonds at the best yields when investment funds are available. Usually this is accomplished with larger-coupon bonds priced to a call.
Our rule-of-thumb is to ensure the yield-to-the-call is higher than the yield available on a par bond maturing in that year. Similarly, we want the yield to maturity to be greater than available on a comparable new issue maturing in that same year. This means we derive the best value whether our bonds are called or go to maturity.
Remember, every dollar invested, including the premium dollars, are working at these higher yields. The reason bonds selling above par offer more yield is because they are too often misunderstood by individual investors. It is this supply-and-demand factor that creates opportunity.
Start here.
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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.