Municipal Bond Forum

I hold both muni funds (long term) and a large portfolio of individual munis. Now that my paper gains in the funds have evaporated, I question the wisdom of bond funds vs. individual bonds. I see the drop in prices as good news, but in the bond funds I have no “par value” to rely upon, and I am at the mercy of “yield seekers.” Is my automatic reinvestment of interest in the muni fund a sound “cost averaging” strategy for a buy-and-hold investor?

C.K.

I am 55 years old, so buying a bond that matures in 34 years seems silly. Could I sell a bond like that in, say, 10 years?

D.R., New York

If you buy a discounted bond (not a zero-coupon bond) and it matures at par, is there a capital gain to report?

D.Y., Florida

Regarding your article (“Good News: ‘The Sky is Falling’“), what about taxable bonds? Though the coupons are good, they are callable at a lower rate than I paid and bought at a high premium.

C.K., California

I’m a former retail stockbroker looking at a forced retirement. My last couple of years had no income tax but I have to take RMDs (required minimum distributions) in two years, so I’m looking at all avenues of growth and income. Since you own the bonds you sell, are your quoted prices the price paid or are there transaction costs added? If I sell a bond, do you handle that side of the transaction too, or can I sell it open market through another broker/dealer? Do you hold the security?

R.F.

Given the current state of the bond market, do you think refinancing will stop? Do you expect long-term municipal bonds will earn higher rates in the near future, maybe 4.00% or more for quality muni bonds?

C.B., Massachusetts

Maybe Chicken Little has returned, as your article (“Good News: ‘The Sky is Falling’“) says, but it’s hard for a muni investor to ignore the fact that the emergency manager for Detroit is offering 10% of par to the bondholders that lent Detroit money in good faith, fully expecting to get repaid at maturity.

S.F., Connecticut

Your article “When Flexibility Counts” tries to minimize the damage done when long-term bonds plummet in value. Capital losses are not exactly a good thing. Unless you have substantial capital gains in the following years, which is unlikely for a bond-heavy investor, those capital losses offset only $3,000 in income. By your logic, someone who lost half the value on a stock can sell it and “capture” the loss, but the tech boom years ago resulted in this happening to me and I still have not been able to offset the loss with future gains.

J.W., California

Just wanted to know if the possible bankruptcy in Detroit will impact our holding of the Detroit Michigan Water Supply Revenue Bond. I’ve read that creditors were told about possible changes to the management of the water and sewage department that might impact the city’s ability to pay its debt on those bonds. Moody’s has now downgraded all bonds to below investment grade.

J.G., Georgia