Municipal Bond Forum

I always enjoy your articles. They’re concise, informative and most interesting. With regard to “Rethinking Your Reinvestments,” as a customer of FMSbonds, my view is that going long with yields at 4.00% to 4.50% may not be advantageous. While tax-free income is desirous, one must take into account real inflation and/or the time value of money, which effectively erodes the real value of the interest payments and their purchasing power. In other words, bonds generating $450 per $10,000 today won’t have the same effective value in, say, 2048 or in 2053, etc. Can you comment on this?

W.H., New York

I read your article, “More Muni Investors Selecting Their Own Bonds,” and would like to learn more about getting out of municipal bond funds and buying individual municipal bonds. My main concern is that if I sell the munis, their price has been hammered due to low interest rates, so I am in essence selling low and buying high. That said, I still would like to have a conversation as I could put my dividends and interest payments into individual bonds.

M.W., Ohio

When can we expect the market value of our municipal bonds to start rising? I know that we get face value when the bond comes due, but I was wondering when the value goes up.

D.J., Florida

Sorry but I do not follow your article (“What’s Concerning Some Muni Investors”). Of course, all of the smart investors sold their bonds at a profit the first of this year and then bought them back when interest rates went up. I only wish that I had done that! That would have been much smarter than to hold them. I have seen my $3 million-plus municipal bond portfolio go from being worth a premium of more than 10% to negative of about 15%.

F.G., Georgia

Like many others, I’m suffering watching my muni bond values decline. I’m a 20-year bondholder at FMS and never had this sick feeling before. Then again, I’m a little older (77) and the chances of collecting my principal at maturity is poor-to-maybe. I could have sold when values were up but chose not to, so here I am collecting dividends until call (hopefully) but maturity (20 years plus) is not going to happen. My bond specialist at FMS tells me that the situation is “manmade” and new bonds are more attractive than my bonds, so I guess I’m stuck with less desirable bonds that will outlive me. I do look forward to reading all of your newsletters.

D.H., Florida

I have about $5.75 million in individual munis, I have over $600,000 in Community Development District (CDD) bonds. Are the bonds safe? Are the CDD districts in a good financial state? Both of the FMSbonds specialists I work with, Edie Nasello and Kara Lucas, have been a great help over the past 10 years. Hope I am not bothering you. I realize I am a pretty small fish in this lake.

W.S., Florida

I own many bonds in my portfolio but haven’t bought any in more than a year. How can I justify buying bonds yielding about 2.50% when inflation is running at about 6.00%? Bonds with higher yields have steep premiums and possible calls. I think the municipal market is dead money for the foreseeable future.

M.S., Connecticut

Let me start by saying I am a municipal bond fanatic. My portfolio is comprised of approximately 250 issues, every one thoroughly researched. In general, I am a buy-and-hold to maturity/call investor. However, premiums for some of my bonds have gotten so high that in my view it made sense to sell, capture the capital gains and redeploy those funds into other municipal bonds that are overlooked and mispriced in the market. Do you always buy and hold to maturity/call, or do you sometimes sell?

M.C.

We’re thinking about purchasing muni bonds from outside of our state. Does FMSbonds have an article about this? I understand munis would be taxed at the federal level, but if we bought Treasuries, for example, there would also be state tax.

J.M., California

Is it wise to put all your money in municipal bonds? It’s tempting because they’re tax-free. The money markets are paying around 1% and are taxable. Should one have some balance in their investment program?

E.A., Florida