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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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Do you think, theoretically, that the muni market would be better off, or at least far less volatile, without muni mutual funds? Watching outflows from munis based solely on what amounts to an equity-market mechanism seems to negate much of the advantage of owning munis. Fund managers start selling to cover potential redemptions, and share prices fluctuate like a roller coaster, having nothing to do with the underlying assets.- P.H.,Oregon
The cash flows in and out of muni mutual funds do not negate the advantage of owning muni bonds in any way, other than exaggerating the volatility in this $3.8 trillion market.
Traditional bond investors buy individual tax-free bonds for the income and high quality, after-tax returns unmatched by any other fixed-income investment. Because their bonds have a stated maturity and call date, they may find market fluctuations uncomfortable, but irrelevant.
In our experience, most veteran bond buyers welcome the higher yields triggered by muni fund redemptions. While bond fund outflows have averaged over $1.6 billion per week recently, individual bond purchases have outnumbered sales by more than 2.5 to 1.
Excellent article (“Investors in Michigan Munis Strike Back,”) clarifying the unintended consequences of the Detroit approach to bankruptcy. In addition to the obvious chilling effect this is having on the municipal bond market in Michigan, I reckon it is also having a negative impact on the broader muni bond market. If the current plan goes through, it is a game changer for muni bonds everywhere.- M.H
We are not convinced that U.S. Bankruptcy Judge Steven Rhodes will rule that voter approved, general obligation bonds will be considered unsecured debt as outlined in the proposal by Detroit’s emergency manager. Naturally, we will be monitoring this situation closely.
We are New York residents. Currently, our muni bonds are decreasing in value. Since January 2013, our portfolio has lost about 3% of its value. Our advisor has instructed us to stand pat as we are still receiving dividends. What would you suggest we do?- C.M., New York
If you hold individual bonds rather than mutual funds, we would never suggest selling them due to market fluctuations.
We know that over the life of long-term bonds, they will sometimes be worth more than you paid for them and sometimes less. It is really irrelevant.
Municipal bonds are purchased for the tax-free income, not capital gains. If your bonds are of good quality and are from New York state issuers, they will continue to provide the steady stream of triple-exempt income for which they were purchased.
If you’d like us to review your portfolio at no charge, please contact us.
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.