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.
Why are Alabama’s bonds rated “AA” when Jefferson County is in bankruptcy and the bonds are worthless? It sure makes bond buyers reluctant to buy, or rely on the rating system. I’m a million-dollar muni bondholder.
J.P., Kentucky
Jefferson County’s bankruptcy was a disastrous option, but I can’t help but wonder whether they had any other options. And even if they didn’t declare bankruptcy, wouldn’t their services have deteriorated anyway because of their financial condition?
D.W., California
Were Jefferson County bonds insured? If they were, would the principal be paid? I only invest in insured bonds.
T.R., New York
Would you please tell me the difference between “escrowed to maturity” bonds and “fully-defeased” bonds”?
D.D., California
I have been hearing for several years that municipalities had to increase interest rates in order to attract buyers. Is that correct?
V.C., California
I’ve read that Los Angeles will file for bankruptcy, but I can’t find anything to confirm this. I do know that the city’s deficit is in the hundreds of millions. So far, my bonds tied to Los Angeles are holding up in value. Most are revenue bonds. What would happen to the revenue bonds, such as the LA DWP, should the L.A. general fund become insolvent?
S.W., California
Could you describe the importance of insured muni bonds? What exactly do they insure? Also, just how dangerous do you consider leveraged funds to be? Is the risk with these funds worth the extra high yields?
M.F., California
Why is the availability of bonds so restricted? What will it take to restore municipal issuers’ confidence?
S.O., California
If dollars from the sale of bonds with looming call dates are used to purchase cheaper, longer- term bonds, would this lengthen the average maturity or call dates in my portfolio? If so, would this cause an increase in risk due to rising interest rates that seem predictable over the next few years? For example, if I replace many of my shorter-term bonds with longer-term ones and interest rates rise, I might be sacrificing the opportunity to buy bonds later at higher rates. As you can probably tell, my muni bonds are currently arrayed in a “ladder.”
D.T.
I have a question about the way rating agencies work. Certain municipalities across the nation and in California are rated “AAA,” while the U.S. Treasury is rated only “A.” This discordance is silly. What are your thoughts?
J.S., California
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