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Municipal Bond Forum

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.

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Perception of risk


We nearly had a default of U.S. obligations because of the choices made by representatives of several states. Given their willingness to allow a U.S. default, is there a default risk premium built into state and local bonds?

- I.P.
James A. Klotz responds

We are not of the opinion that the U.S. nearly defaulted on its debt obligations. The embarrassing scenes we witnessed struck us as more ineffective government leadership playing dangerous political games.

Unlike the federal government, most states and municipalities are required by law to balance their budgets.

Theoretically, all bond investments have the risk of default as a worst-case scenario and, presumably, the likelihood of such an event is incorporated into market participants’ perception of risk.

Bonds that suit you


I wonder, how does your firm select the bonds on your offering list? It does not seem to be very large or comprehensive. Do you offer these bonds based on their qualities?


- Y.D., California
James A. Klotz responds

When viewing our online inventory, you should know that we own all the bonds we sell, which means we extensively research them prior to offering them for sale. Our offerings are predicated on suitability, so we can confidently recommend our bonds to individual investors.

This is a very important point because the majority of brokers displaying bonds online are invariably offering merchandise owned by other dealers. Consequently, they are not able to answer questions regarding the various nuances of any particular security, which is of vital importance to prospective buyers.

Not every item we own makes it to the online inventory. Clients contact our bond specialists every day looking for certain bonds that suit their particular needs, and we invite you to do the same.


Heirs, and munis in your IRA


If I buy munis in my IRA, are they free of all taxes, even when I die? Do my heirs get them tax free? Is there a difference in tax burden if they are in California, where I live, or another state?


- B.H., California
James A. Klotz responds

Because you receive a deduction when contributing to your IRA, any distributions taken will be subject to all applicable taxes.

The only compelling reason to use tax-free bonds in your IRA is if their nominal interest rates are higher than comparable quality taxable securities.

Please consult your tax professional regarding your specific situation.


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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.