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.
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I own some Ambac-insured bonds that, I am told, have technically defaulted, but so far have continued to pay interest. The bond I have is 100M of Alabama Water Pollution Control Authority (Jefferson Co.) 4.25 of 2/15/15, Cusip 010653QZ9. A Material Event Notice on this bond was issued on Oct. 4, 2010, regarding this default. The bond has not traded since this notice was issued. Any thoughts concerning this issue? Can Ambac bail me out if necessary?
W.L., Illinois
I agree with you on your analysis of Ambac’s fall. The best I see is that the bonds they insured were actually pretty good, so they should be OK. It was their mortgage business that killed them. Greed.
J.W., California
I liked your article on the Dow’s recent rise past 11,000 and how it first broke that mark 11 years ago, and I see the logic of it. I have a nice size portfolio of long-term bonds, most of them purchased through your excellent broker, Michael DeStefano. Now I am worried. With the Fed pumping so much money into the economy and then buying Treasuries, what’s the effect on long-term municipal bonds, especially if municipalities cannot pay their bondholders? Bonds have provided a good income for me and enabled me to bridge the gap because of my forced retirement six years before I was eligible for Social Security. Now that I am on Social Security, I do have money to invest, but I’m not sure it should go in bonds because of the Fed’s policies.
I.S., New York
Will BABs continue after 2010?
R.S., Missouri
You write that muni bond investors should first be satisfied with the credit quality of the bonds they’re considering purchasing and then focus on maximizing their tax-free income by purchasing long-term bonds. What do you consider good credit quality in a muni bond?
L.C.
My wife and I have followed your advice about seeking high income in quality long-term bonds held to maturity and are happy with the results. Now, at age 67, we are still adding to our holdings and would like to have your thoughts on the factors that might go into a choice of maturity length. A 30-year-bond may well outlive us, for example, but provides a better yield than a 20-year bond and should be the better choice if, as we hope, we never have to sell it. Is this still the case if an unforeseen event should require us to sell in 20 years? Should we be buying some bonds with shorter maturities (10 to 20 years) or is longer term still the best choice?
R.K., Minnesota
Many of us try to time the market in an attempt to stay nimble and flexible. We would all like to be able to buy and hold to maturity, but it’s quite hard to predict what might come our way in the next 20 or 30 years. No one wants to get trapped, and maybe have to give back some or all (or worse, even more) of that higher coupon.
J.
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