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-FMS-BOND (1-800-367-2663) or e-mail us.

Capital gain on a discounted bond?

If you buy a discounted bond (not a zero-coupon bond) and it matures at par, is there a capital gain to report?

Can't predict refinancing

Given the current state of the bond market, do you think refinancing will stop? Do you expect long-term municipal bonds will earn higher rates in the near future, maybe 4.00% or more for quality muni bonds?

Crystal ball won't work on fixed-income investments

Regarding your article ("Good News: 'The Sky is Falling'"), what about taxable bonds? Though the coupons are good, they are callable at a lower rate than I paid and bought at a high premium.

Looking for growth and income

I’m a former retail stockbroker looking at a forced retirement. My last couple of years had no income tax but I have to take RMDs (required minimum distributions) in two years, so I’m looking at all avenues of growth and income. Since you own the bonds you sell, are your quoted prices the price paid or are there transaction costs added? If I sell a bond, do you handle that side of the transaction too, or can I sell it open market through another broker/dealer? Do you hold the security?

Detroit water supply revenue bonds

Just wanted to know if the possible bankruptcy in Detroit will impact our holding of the Detroit Michigan Water Supply Revenue Bond. I've read that creditors were told about possible changes to the management of the water and sewage department that might impact the city's ability to pay its debt on those bonds. Moody's has now downgraded all bonds to below investment grade.

Insurers reaffirm their obligations

Maybe Chicken Little has returned, as your article ("Good News: 'The Sky is Falling'") says, but it's hard for a muni investor to ignore the fact that the emergency manager for Detroit is offering 10% of par to the bondholders that lent Detroit money in good faith, fully expecting to get repaid at maturity.

The promise to pay

Your article "When Flexibility Counts" tries to minimize the damage done when long-term bonds plummet in value. Capital losses are not exactly a good thing. Unless you have substantial capital gains in the following years, which is unlikely for a bond-heavy investor, those capital losses offset only $3,000 in income. By your logic, someone who lost half the value on a stock can sell it and “capture” the loss, but the tech boom years ago resulted in this happening to me and I still have not been able to offset the loss with future gains.

Good thinking

I never sell my long-term bonds. I keep them until a call or maturity. I just want the interest coming in and use it to purchase more bonds. I'm very careful about the ratings, types of bonds, and the municipalities they are issued on. My bond portfolio ranges from 5% to 4% to a few at 3.5%. I've been advised by various brokers to sell some of them, as many are more valuable now than what I initially paid for them. Not interested; I just want the interest income. Am I doing the right thing?

Premium must be amortized

I read somewhere that no loss is allowed when premium bonds mature. Is it because you’d be expected to earn more interest?

Proposals probably have no impact on muni prices

Do you think current muni prices have been effected by proposals out there that would abolish the tax exemption for municipal bonds or apply a 28% cap on the exemption?

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