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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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California is not Puerto Rico


Regarding your article, “Embrace the Headlines,” I do not believe one can compare California with Puerto Rico. Yes, California had problems, but it has always had a thriving state economy and is now running a surplus, where Puerto Rico never has been. I’m just thankful I chose to not buy Puerto Rico bonds.

- N.S., California
James A. Klotz responds

Our article in no way was intended to compare California to Puerto Rico. Our intent was to demonstrate that headlines from the financial media are often extremely misleading. We are not comparing California to Puerto Rico any more than the media should have compared California to Greece.

Caution always makes sense


While I agree with your article that the hype almost always exceeds the reality (“Embrace the Headlines”), there are thousands of bonds that are listed in default and several significant city defaults, like Detroit). This reveals that there is some rational basis for concern and to proceed with caution.

- K.F., Ohio
James A. Klotz responds

There is always reason to proceed with caution because, as we said, all investments carry some degree of risk. Of course, perspective is valuable, too: According to Moody's and Standard & Poor's, less than one half of one percent of municipal bonds rated by these credit agencies have ever defaulted.

Panic doesn't pay


With the selloff of municipals, particularly those issued by Puerto Rico, there was been a reduction in the market value of individual bond portfolios. I think this is panic selling by bondholders fixated on the events in Detroit and Stockton. I don’t think these people belong in municipals in the first place. While no one wants the value of their portfolio to decline, this should not be a paramount consideration for bondholders, who get it all back upon redemption.

- N.M., New Jersey
James A. Klotz responds

We couldn't agree more. This is the very definition of panic selling, not just from individual investors but also from institutions.

Unfortunately, the lower prices caused by these mass liquidations has a snowball effect which feeds upon itself and begets more selling, causing severe price deterioration.

Although we anticipate Puerto Rico bond prices will remain volatile over the near future, holders of individual bonds should continue to receive their timely interest and principal payments.

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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.