Municipal Bond Forum

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.

On “GM Turnaround Hits High Gear”

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

read more

On “GM Turnaround Hits High Gear”cont’d #2

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

read more

On “Bullish on GM?” and “GM Considers Alliance”cont’d #3

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

read more

If bond status changes

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.

read more

Profit on zero-coupon bonds

I am in a bit of turmoil and confused. In 1990, I bought a zero coupon tax-free muni for $9,155 and last year (2005), it reached its maturity and I cashed it in for $25,000. It was a Pennsylvania bond, and 10 years ago, I moved to South Carolina. I thought that no tax would be owed on this bond since it was a zero-coupon muni, but I’ve been informed that I will owe federal taxes on the profit made in those 19 years. Is that right?

G.B.

read more

Sinking fund calls

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

read more

Protesting bond calls

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

read more

Start here.

Do you have specific criteria for bonds you’re looking for? Let us know and we’ll e-mail you bonds that fit your needs. There is no charge for this service.