Municipal Bond Forum
Calling ETMs
Q
Your article “ETMs and You” hits the ETM issue right on point, but there is one item that still is rather perplexing: In the case of the New York City escrowed bonds or any other ETMs with call provisions, why would the bonds be called? I understand that any “profit” from the underlying Treasury price appreciation is kept by the IRS, so financial motivation seems to be ruled out, unless there’s some nominal administrative expense associated with keeping the bonds outstanding. Could this be it or is it something else?
A
James A. Klotz responds:
The IRS has prohibited municipal bond issuers from profiting from the arbitrage created by the spread between taxable and tax-free interest rates. However, issuers can still reap the rewards of price appreciation of the escrowed Treasury securities (after taxes).
Start here.
Do you have specific criteria for bonds you’re looking for? Let us know and we’ll e-mail you bonds that fit your needs. There is no charge for this service.
The responses provided in this forum are meant to address specific questions posed by investors about their municipal bonds and to provide market insight for our general audience. Please note, your investments, objectives, results and experience may differ significantly. Our answers and any potential strategies discussed should not be construed as a solicitation to buy nor sell any security or investment product. All investing entails risk.
