Municipal Bond Forum

I own some Ambac-insured bonds that, I am told, have technically defaulted, but so far have continued to pay interest. The bond I have is 100M of Alabama Water Pollution Control Authority (Jefferson Co.) 4.25 of 2/15/15, Cusip 010653QZ9. A Material Event Notice on this bond was issued on Oct. 4, 2010, regarding this default. The bond has not traded since this notice was issued. Any thoughts concerning this issue? Can Ambac bail me out if necessary?

W.L., Illinois

Great article on the Ambac situation, but where does this leave the individual investor? Your article mentions “scrutinizing” the individual issuers, but that is very difficult if you are not a financial analyst by nature. I am an avid investor and a past analyst and even I have to dig through hundreds of pages just to make a judgment call on these issues and issuers.

T.C., Maryland

You write that muni bond investors should first be satisfied with the credit quality of the bonds they’re considering purchasing and then focus on maximizing their tax-free income by purchasing long-term bonds. What do you consider good credit quality in a muni bond?

L.C.

Will BABs continue after 2010?

R.S., Missouri

I enjoyed your article about the Dow’s recent rise and how the TV talkers fail to mention how it’s only back to the level it was 11 years ago. These jokers like talking about bubbles. The bubble in the equity market explodes and is gone. A bubble in municipal bonds is different. If you are interested in fixed income, you keep the bond to maturity, never mind what the market value of the bond is. In the meantime, you earn income. Where is the bubble in this case? Compared to their alternative, their bubble is irreversible and I can show you the last 20 years. To make their blood-sucking point, they show you the performance since the Great Depression, not the last 20 years. There is a cycle of bust almost every 10 years but with no certainty on the exact time. A world-renowned professor friend of mine recently told me that the stock market is working perfectly — it is very large, liquid, efficient and competitive. Under these conditions, you should expect to make very little return. He answered my question beautifully. Thanks again.

Y.M., California

Many of us try to time the market in an attempt to stay nimble and flexible. We would all like to be able to buy and hold to maturity, but it’s quite hard to predict what might come our way in the next 20 or 30 years. No one wants to get trapped, and maybe have to give back some or all (or worse, even more) of that higher coupon.

J.