I may have to look for other investments. Bonds are getting priced too high.
K.F., Ohio
Priced too high?
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Municipal Bond Forum
FMSbonds, Inc.’s Municipal 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, and other members of the firm as noted.
Postings are listed by date. If you have any questions, please call us at 1-800-367-2663 or e-mail us.
On “GM Turnaround Hits High Gear”
I own bonds at FMS that mature in 2030, but I am not a bond expert. Although I consider myself a somewhat risk-tolerant investor, wouldn’t it be a more prudent strategy, if one is looking at total yield (income plus growth) to purchase a company’s stock rather than downgraded bonds that yield 8% to 10%? I am thinking of both the upside and downside potentials here. On a stock, one can also put a stop-loss order at a certain level and limit the downside potential, while the upside potential is infinite. With bonds, if the company defaults on payment, you’re SOL, and the upside potential is limited to the bonds’ yield, unless the prevailing interest rate diminishes.
S.P., South Carolina
On “GM Turnaround Hits High Gear”cont’d #2
Why haven’t S&P and Moody’s seen fit to reevaluate their ratings on GM bonds and debt? I know the average investor feels that a traditional, old-time corporation such as GM will never file Chapter 11, but as you said, no risk, no reward. Thanks for your great commentaries.
B.P., Florida
On “Bullish on GM?” and “GM Considers Alliance”cont’d #2
What do you think about GMAC bonds? I am one of your customers.
M.R., Florida
On “Bullish on GM?” and “GM Considers Alliance”
I think GM is going down and will be bought by Toyota.
M.B., California
On “Bullish on GM?” and “GM Considers Alliance” cont’d #4
Your opinion on GM corporate bonds is confusing. How can there be an upside when you speak about possible bankruptcy?
V.K.
On “Bullish on GM?” and “GM Considers Alliance”cont’d #3
What everyone seems to be overlooking is the fact that the motor companies still need a contract with the remaining workers that doesn’t pay high school dropouts $150,000 a year to screw nuts onto bolts – or am I missing something? The legacy health costs are still a huge issue for GM and Ford. Eventually there will be an opportunity in these bonds, but I think it is still early. The fact that “analysts” are now recommending the company suggests to me that I am probably correct. I would appreciate your further thoughts on the points above.
E.S., Florida
If bond status changes
If the feds revoke a bond’s tax-free status because of the issuer’s intentional/unintentional violation of applicable federal “tax-exempt” regulations, can a muni bondholder protect himself from income tax liability?
H.B.
Profit on zero-coupon bonds
I am in a bit of turmoil and confused. In 1990, I bought a zero coupon tax-free muni for $9,155 and last year (2005), it reached its maturity and I cashed it in for $25,000. It was a Pennsylvania bond, and 10 years ago, I moved to South Carolina. I thought that no tax would be owed on this bond since it was a zero-coupon muni, but I’ve been informed that I will owe federal taxes on the profit made in those 19 years. Is that right?
G.B.
Sinking fund calls
I have a question regarding mandatory sinking funds. If a muni bond has been pre-refunded and is properly defeased, is the issue still subject to the mandatory sinking fund that was originally part of the issue?
J.M., Michigan
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