Do you have specific criteria for bonds you're looking for? Let us know and we'll e-mail you bonds that fit your needs. There is no charge for this service.
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.
Postings are listed by date. You may also view postings by topic using the search box below. If you have any questions, please call us at 1-800-FMS-BOND (367-2663) or e-mail us.
What is your opinion regarding the safety of the city of Detroit's general obligation, water and sewer munis?- W.L Michigan
As you are aware, the city of Detroit has been in financial distress for quite a while. As a result of the city’s inability to overcome its chronic budget problems, the governor has appointed an Emergency Financial Manager who will have significant ability to make budget reductions, alter existing contracts and can even recommend to the governor that the city file for Chapter 9 bankruptcy. The law under which the manager was recently appointed took effect March 28, 2013; he has only recently taken office.
We believe that the manager would be reluctant to allow the city to default on its bonds because access to the financial markets for capital projects is the lifeblood of any municipality. However, the financial problems of Detroit are sufficiently severe that some sort of debt adjustment or restructuring cannot be ruled out. This would especially be the case should the city file for bankruptcy.
The enterprise debt of the city, i.e., water and sewer, would likely fare better than other city debt in such a case since those bonds are paid by a dedicated revenue stream. Typically, such debt has been allowed to continue to use system revenues to pay debt in other communities facing distress. In Detroit’s case, the water and sewer systems also serve other communities outside the city, and there would likely be a reluctance to take actions that would affect entities outside of the city.
Standard & Poor’s rates Detroit’s GOs “B” and Moody’s assigns the city a rating of “Caa1.” Both rating agencies cite the great uncertainty ahead as to whether the city’s debt repayments will continue unaffected by the appointment of the emergency manager and the potential of a bankruptcy filing. Of course, bonds that carry insurance are expected to be paid on time, as they have in the past. The city is entering uncharted waters and we will watch events carefully as events unfold.
My muni bond portfolio pays out almost 5% annually and earns the equivalent of almost 7.5% in taxable income with little risk to my principal. Let's say I have a bond with a face value at maturity of $50,000. The cost basis is $50,685, the current yield is 4.58%, the current value is $58,700, the estimated annual income is $2,688 and the "unrealized gain" is $8,015. The bond matures on 1/1/21. How do I determine the optimum time to sell these bonds? The unrealized gain will undoubtedly decline as I get closer to maturity. Also, if a bond matures on, say, 1/1/21, but is callable on 1/1/19, what does that mean?- P.P., Arizona
You're to be commended: a 7.5% taxable-equivalent yield is enviable in today's lower interest rate environment.
As you know from visiting our Web site, we don't have an answer regarding when to sell, anymore than we know the right time to buy. Attempting to time interest rates is a futile exercise. The primary reason for owning bonds is the income.
Remember, regardless of the size of your gain, if you sell today you will not be able to replace the income you are now enjoying. There is a "bid" and "asked" spread in the market to overcome, as well as a tax that must be paid on the gain.
You are correct inasmuch as the price of your bonds will decline as they approach maturity. The callable date is the first time these bonds can be retired by the issuer.
I own approximately $2.2 million of New York and New Jersey tobacco bonds. I am told those states did not accept the 54% tobacco bond settlement (“More Concern Over Tobacco Bonds”). I’ve had difficulty finding out how much is being held in escrow for each state and the total amount paid each year.- G.B.
Yes, the information you’re looking for is hard to find. Since the Master Settlement Agreement (MSA) between the tobacco companies and states is a private settlement, the type of information you’re seeking is not readily available, and we do not have access to the specific information you have requested.
The amount a state receives each year depends on the prior year's domestic cigarette shipments. These numbers are reported privately to an independent accounting firm that tallies that information, determines each manufacturer's liability, and divides the receipts from those companies among the states according to a predetermined formula. Thus, each year's tobacco settlement receipts that a state receives depends on industry shipments in the prior year.
This number is also affected by various adjustments built into the MSA. Again, as a private agreement, the public only learns of the amount a state receives if it decides to release that information. Each year's settlement payments are made to the states in April. You can check the newspapers at that time to see if the states you are interested in have announced their receipt of tobacco revenues.
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.