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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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If I buy only insured muni bonds, do I still need to be concerned with the bonds' rating?
- G.E., Louisiana
As an investor, you should always be the one who determines the degree of security you are comfortable with, based on your personal risk tolerance.
As you know, most "investment-grade" rated municipal bonds provide an adequate degree of security, as evidenced by their very low default rate.
Insurance provides an additional layer of credit quality, but it is always prudent to evaluate the underlying security.
I have many Puerto Rico munis and they are insured by Assured Guaranty. If the commonwealth restructures these bonds, what will happen afterward? Will I lose value? Will the insurer pay me back what I lose?
- B.C., California
Assured Guaranty, as all insurers, is responsible for making the full interest payments and principal at maturity. The insurance companies, however, are not obligated for any loss of market value in the interim.
I read an article that said it’s time to get out of munis. It said although they’re up 8.30% this year, interest rates are about to rise and investors are going to sell to protect their gains. What do you think?
- A.G., Illinois
We didn’t see the article, but we can say the fact that munis are up this year is irrelevant to bond investors. They don’t sell their bonds just because their prices increase.
We elaborate on this very important point here: “The No. 1 Sin of Muni Investing.”
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.