Municipal Bond Forum

As a client of yours, and a reader of your bond forums, which I really enjoy, I had some thoughts on your article. What you wrote makes sense, but what would be the problem with buying a 10-month or one-year CD, which is paying close to a 5% yield, and after the maturity of the CD, investigate yields of long-term munis. Can long-term muni bonds go any lower? I don’t think so. At some point the yields would have to rise. Does this make sense?

D.P, Florida

To what extent are foreign purchases of longer-term treasury securities responsible for the present slope of the curve?

So you’re saying, don’t keep your eggs in one basket? If I can get a higher yield short term with a portion of my portfolio, and swing the higher yield earned into the long terms (before they’re bought out), that would be the best, right? Thanks for your thoughts. Your article was short, precise and good for average investor like me!

S.P., New Jersey

I understand that certain bonds, particularly facility revenue bonds (i.e., hospital or housing bonds), often will carry an ERP (Extraordinary Redemption Put) call feature to cover a cataclysmic event to the facility whereby the bonds could be called, typically at par. In the case of an escrowed bond whose underlying facility has such an event and their bonds are called, would the escrowed bonds also be called? Assume that the bond has been properly defeased and now has Treasuries supporting the payments and redemption. Could, or why would, the bond be called? It is no longer dependent on the revenue stream of the facility.

J.M., Michigan

After following your Web site and recommendations for several years, I decided to purchase some bonds from you. When I went to open an account, the very first question I was asked was my social security number and date of birth. If I opened an account, I would expect to give you my social security number, but my birth date is none of your business, except to assure that I am a legal adult. Consequently, I have given up the idea of switching brokers. You might want to rethink your policies.

With the inverted Treasury yield curve and the muni bond curve being visibly flat, do you still advise investors to buy long muni bonds? Why would one want to risk buying long-term bonds when there is no reward to extend out in the curve? What do you think about investing 80% of one’s portfolio in short term bonds and 20% in equities?

M.V., California

I read your analyses regularly and thank you for them, but you have stumped me with the GM piece. Is FMS opening a corporate (taxable) bond division? Or has the muni market been so flat for so long that y’all are pushing into equities? Or is this a setup for munis from localities that GM is abandoning? It might help to connect the dots for your readers by explaining exactly how or whether GM’s recent share price and corporate bond prices make a difference to muni investors and to which investors, specifically.

S.P., North Carolina