Municipal Bond Forum

Retrospect, like hindsight, is always 20/20.  

Unfortunately, we are in the type of investment environment today that enables your next broker to tell you what your last broker should not have sold you, despite the fact he sold the same thing to the client he just lost.

The fact that some of your bonds have declined in value may have very little to do with their ability to pay principal and interest.

The municipal bond market in general, and California bonds in particular, have not been immune from forced-selling by institutions and hedge funds. We would encourage you not to jump to any conclusions in regard to the security of your tax-free bonds.

Your bond interest payments are fixed. They do not fluctuate with the market value of the securities.

Since the bond funds own municipal bonds, they are subject to the same market conditions as the individual bonds. Actually, because bond funds have no stated maturity date, they tend to be more volatile than individual bonds, whose maturity date shortens as time passes.

Municipal bonds don't need to be actively managed. We feel annual management fees in bond funds cause an unnecessary reduction of yield.

The economic outlook and economic base of a state are major factors in the establishment of a general obligation rating. As such, trying to determine the direct impact of a state's economic condition alone on the price of a security would be very difficult. There are many factors, including the overall market for Ohio securities, which dictate securities’ pricing.

As far as Ohio's credit rating is concerned, the economic base is a major component for Standard & Poor's. In its most recent assessment of Ohio (1/2/09), S&P reaffirmed Ohio's “AA+” rating with a “stable” outlook. This rating is in the upper half of all state ratings and reflects, primarily, a long history of strong and disciplined financial management, as well as a strong and broad economic base. S&P noted Ohio's weak economic performance in recent years, while recognizing an expanding services sector. Debt was seen as moderate, and S&P believes the state is well managed.

Debt ratings are one of the most important determinants of how securities trade, and Ohio's debt rating is strong, despite weak economic performance. To what extent the economy alone is accountable for the price of the state's securities is hard to gauge. But the price improvement you have seen may be related to the state's continued confidence shown by S&P.