Municipal Bond Forum

I own bonds at FMS that mature in 2030, but I am not a bond expert. Although I consider myself a somewhat risk-tolerant investor, wouldn’t it be a more prudent strategy, if one is looking at total yield (income plus growth) to purchase a company’s stock rather than downgraded bonds that yield 8% to 10%? I am thinking of both the upside and downside potentials here. On a stock, one can also put a stop-loss order at a certain level and limit the downside potential, while the upside potential is infinite. With bonds, if the company defaults on payment, you’re SOL, and the upside potential is limited to the bonds’ yield, unless the prevailing interest rate diminishes.

S.P., South Carolina

Why haven’t S&P and Moody’s seen fit to reevaluate their ratings on GM bonds and debt? I know the average investor feels that a traditional, old-time corporation such as GM will never file Chapter 11, but as you said, no risk, no reward. Thanks for your great commentaries.

B.P., Florida

What do you think about GMAC bonds? I am one of your customers.

M.R., Florida

I think GM is going down and will be bought by Toyota.

M.B., California

Your opinion on GM corporate bonds is confusing. How can there be an upside when you speak about possible bankruptcy?

V.K.

What everyone seems to be overlooking is the fact that the motor companies still need a contract with the remaining workers that doesn’t pay high school dropouts $150,000 a year to screw nuts onto bolts – or am I missing something? The legacy health costs are still a huge issue for GM and Ford. Eventually there will be an opportunity in these bonds, but I think it is still early. The fact that “analysts” are now recommending the company suggests to me that I am probably correct. I would appreciate your further thoughts on the points above.

E.S., Florida

If the feds revoke a bond’s tax-free status because of the issuer’s intentional/unintentional violation of applicable federal “tax-exempt” regulations, can a muni bondholder protect himself from income tax liability?

H.B.

I have a question regarding mandatory sinking funds. If a muni bond has been pre-refunded and is properly defeased, is the issue still subject to the mandatory sinking fund that was originally part of the issue?

J.M., Michigan

What do you think of muni buyers (and for that matter, other bond buyers) rallying together to stop issuers from calling bonds? When we buy a bond, essentially, we are committing to the issuer to hold that paper until maturity, and with that commitment, we expect a certain return to that point in time. However, when it suits them, they call the bond. Most often, that means that we have to reinvest those funds at a lower rate of return. I know that there is general market into which the bond can be sold by us, but we don’t have the right to go to the issuer and ask for our money back. Has such a move ever been seriously considered?

M.L., Florida