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FMSbonds, Inc.'s 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; Dr. Jay H. Abrams, chief municipal credit analyst; and other members of the firm as noted.
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The city of Detroit, under the emergency management of Kevyn Orr, is attempting to treat general obligation municipal debt as unsecured. At stake and under consideration by the court are the terms "promise" versus "tax obligation." Do you have any thoughts on the safest states?
- V.A., Nevada
It is important to remember that Detroit is extremely unique. It is a city that has clearly been deteriorating for many years due to gross mismanagement with a declining population and tax base.
There are many high-quality bonds available in every state that can satisfy your requirements for safety. As a resident of a state with no income tax, you have the entire country to choose from.
James Klotz’s recent comments don’t seem like a ringing endorsement of Puerto Rico bonds.
- L.P., Indiana
As we have said before, Puerto Rico bond prices have been battered by panic selling and were recently downgraded by S&P.
However, we see no likelihood of imminent default by any Puerto Rico issuing authority. We do anticipate a rocky and uncomfortable ride for bondholders, but as fiscal reforms are implemented, we expect all interest and principal to be paid on a timely basis.
I'm even more confused from your article, “On Puerto Rico’s Finances, The Glass is Half…” I have a lot of Puerto Rico bonds. Is the situation improving or deteriorating? If I need to sell my bonds at a huge loss, I would like to do it before it is too late.- J.S., California
Actually, this is precisely what our article was intended to reflect. The title acknowledges that there is a great deal of disagreement, even among the most respected analysts.
We feel, however, that if investors are uncomfortable holding Puerto Rico bonds – or any other securities – they should consider reducing their exposure to these issues.
This report is produced solely for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. This report is based on information obtained from sources believed to be reliable but no independent verification has been made, nor is its accuracy or completeness guaranteed.