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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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Can you explain what insurance is and how it works? What is the risk? Is a bond with insurance as safe as a CD with FDIC insurance?
- D.R., New York
In addition to being secured by the issuer through dedicated revenue streams, certain bonds are insured by private insurance companies for the timely payment of principal and interest.
The insurance companies carry ratings based on their financial strength.
This private bond insurance should not be confused with FDIC, which is deposit insurance backed by the full faith and credit of the federal government.
We received an e-mail warning bondholders of higher interest rates and strategies to make a lot of money quickly. More than half of our retirement portfolio is with FMSbonds. We entrusted our funds with you in the hope that we do not have to worry about the future, regardless of interest rates, etc.
- H.D., Minnesota
Over the term that you will own your bonds, at times they will be worth more than you paid for them and at times less. Neither situation will likely prompt a sale. You are buying bonds for the income and they mature at 100.00 (face value).
Regarding the article you sent, the people who wrote it said they’ve been warning investors for four years, which must mean they’ve been wrong for the past three. What happened to the people who followed their advice then?
These people also promise a “quick 164% windfall” and a “safe 10.58% annual yield.” In this low-interest rate environment, one should be very wary of such assurances.
My husband and I have quite a few Detroit General Obligation bonds back by AMBAC and other insurers. Aren't the insurers responsible for paying us if the city defaults on these G.O. bond payments?
- L.J., Colorado
That is correct. The bond insurers are responsible for the timely payment of interest and principal.
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.