Municipal Bond Forum

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

A majority of my retirement savings is in California muni bonds. In 2005, the unexpected increase in state income tax revenues has been a pleasant surprise. I would like to believe that, as your recent articles state “California’s move rewards bondholders“, California’s economy is strong. However, a fiscal analyst warned that with even a mild recession, California’s financial outlook would be very bleak. Because of Prop 13, the state’s economy does not have a steady source of revenue from property taxes. Instead, the state income tax is the main source of revenue. The New York Times recently had an article on the under-funding of state retirement benefits. The article highlighted what it termed a looming problem. This under-funding has occurred in California. California’s constitution requires that state government pension benefits, once committed to, cannot be diminished. I realize that the constitution sets as a priority, just below payment of pension benefits, the funding of GO bonds. Given California’s aging population, the radical increase in the cost of medical benefits and California’s dependence on income tax revenue, how will the state’s economy withstand a recession?

J.C., California

I was wondering if the Santa Rosa Bay Bridge Zero Coupon Issue CUSIP 802576BU1 (AAA MBIA-IBC Insured) bonds are in default and if this issue is subject to an extraordinary redemption where they can be called at their original issue price of 23.449?

S.W., Florida

In today’s market, I can get a four- or five-year CD for 4.50%, AAA, with no risk and no premium. If I’m buying an A-rated muni bond, I want at least 2.5% to 3.0% above prime.

J.Z., New York

What is meant by “call protection”?

J.G.