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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.
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I agree with your article (“Don’t be Negative”): Don’t wait. But what do we invest in – low coupons, big premiums and no returns? Oh, seer, what is the answer!- S.M., Florida
Unfortunately we are not seers. If we had the ability to divine the future, a successful strategy for maximizing income would not be necessary.
We are, however, believers in buying good quality bonds at the best yields when investment funds are available. Usually this is accomplished with larger-coupon bonds priced to a call.
Our rule-of-thumb is to ensure the yield-to-the-call is higher than the yield available on a par bond maturing in that year. Similarly, we want the yield to maturity to be greater than available on a comparable new issue maturing in that same year. This means we derive the best value whether our bonds are called or go to maturity.
Remember, every dollar invested, including the premium dollars, are working at these higher yields. The reason bonds selling above par offer more yield is because they are too often misunderstood by individual investors. It is this supply-and-demand factor that creates opportunity.
As you mention in your article, "Munis Spared from 'Fiscal Cliff' Deal," the tax exemption for munis was left intact. I do think, though, that we will eventually see a compromise somewhere between 28% and unlimited. The possibility gives me more to think about when trying to decide on future income sources.- E.R.,Texas
Although you are correct that the administration or Congress may still attempt to cap the tax exemption on munis at 28%, municipal bonds would still provide the best value of all fixed-income markets. That's why the municipal bond market is continuing to attract large inflows of investor dollars and prices are moving up despite this potential threat.
I noticed some Atlantic City bonds you are offering, but I'm not interested in any bonds connected with New Jersey shore communities. Please keep me posted with other offerings.- R.C., New Jersey
In light of Hurricane Sandy, we understand your thoughts regarding bonds issued by cities on the New Jersey shore, but it is precisely why we are recommending the bonds to our New Jersey clients. As municipal bond specialists, we are often able to identify bond offerings that may be out of favor for reasons that may not affect their ability to pay.
Because of Hurricane Sandy, there are some terrific opportunities to acquire high quality tax-free bonds at depressed prices. The Atlantic City general obligation bonds you refer to enjoy an "A-" (S&P) rating on their own merit, and are insured by AGM for principal and interest, making them "AA-" (S&P).
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.