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.
Bully for you on your article, “And the World Didn’t End, Either.” There has always been extremists (rhymes with terrorists) who call and attempt to create Armageddon and almost always wrongly. Keep up the message of sensibility. Diversity is always the correct road.
N.R., Texas
We are holding some Buckeye tobacco bonds and I would like to know what would happen if contributions to the Master Settlement Agreement seriously decline. I have read that the likeliest scenario would be the extension of maturity, which would be fine. But what are the other possibilities? I assume that defaults do not just happen overnight, or do they? My wife and I have been working with Saul Rosen for a couple of years now and we think he and your firm is top of the ladder. We appreciate the straightforward business practices and no-nonsense advice.
P.H., Oregon
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?
J.K.
In reviewing the recent financial statements for some of the tobacco bonds that I hold, it appears that tobacco revenues pursuant to the Master Settlement Agreement are declining as a result of declining tobacco sales in the United States and, in some cases, the revenues are even less than the expenses. What is your outlook for tobacco bonds?
J.M Florida
One-year CDs pay just 1%. The other day, I was offered a 5% well-rated muni at par. That’s a great return, but it’s so different from what’s being offered at banks, that I’m scared because it’s too good and everything else is like in a different world of interest return. I have always believed that high return equals greater risk.
J.S., New Jersey
In your article, you made a statement concerning the default on nine separate bonds that didn’t have an S&P rating. The problem with that statement is that by the time the bond defaults, S&P has already withdrawn its rating generally due to non-compliance by the issuer with financial reporting requirements. Therefore, in the current market, a bond that did have a “AAA” rating can now not be rated due to the insurer’s default and financial problems with the issuer. To say that the nine defaults were not even rated by the S&P isn’t as meaningful as a statement that the nine defaulting bonds were never rated.
S.M., California
With all the volatility I hear about right now in the bond market (I assume this is the entire bond market, not just U.S. treasury bonds) there is a huge uproar when it comes to selling at the high, since interest rates are going to fly. Let me know your thoughts on this.
T.G Connecticut
I would like to see a substantive forum discussion on the possibility of states and municipalities issuing new debt under taxable status.
V.A., Nevada
I recently read about “serious” proposals to remove the federal tax-free character of municipal bonds starting after 2011 and grandfathered to all munis issued before then. I know these kinds of proposals have been floating around forever, but this time it seems to have garnered much more support in Congress, mostly due to the dire budget situation of most states and localities, and also due to the recent success of Build America Bonds. If such a proposal were to pass, it would undoubtedly have disastrous consequences.
A.B., Nevada
You are correct in your assessment of muni bond laddering, but you failed to mention that if you buy one 30-year bond every year, you have effectively created a ladder, or an average life of no more than 15 years, which is now equivalent to holding medium-term bonds, while enjoying higher yields than otherwise. The key is to get started and don’t stop.
J.A., New York
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