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.

Why did Fed rates rise and muni rates ease?

After the Fed raised the benchmark lending rate by .25% last week, why are municipal bond rates off .15% across all maturities and credit ratings?

An opportunity during muni redemptions

I have a laddered portfolio of California municipal bonds, many of which were purchased in 2007 at or around par. Most have coupon rates of 5.00% and are being redeemed this month. In order to reinvest in similar munis, I had to pay a 16% to 20% premium. In your article, “Summer Forecast: A Muni Redemption Flood, Supply Drought,” you said investors can often enhance their tax-free income when bonds are redeemed. With regard to these 2007 bonds, I don't see how redemptions aren't an issue or how reinvesting in similar bonds can enhance my tax-free income. In the decreasing-rate environment that has been in place for around 30 years, shouldn't investors hope that older bonds are not redeemed?

Why trust the muni bond rating agencies?

Moody’s and Standard and Poor’s proved their fallibility in 2008 and before.Their ratings are useless.Why should I trust them now?

How can Puerto Rico bonds have AA rating?

Regarding your article, (Bondholders After Puerto Rico’s Bankruptcy Filing), I noticed you are still selling Puerto Rico bonds with an AA listing.Is there some mysterious way these bonds are safer than the ones I own?How do they get such a great rating?

Determining the ‘quality’ of a municipal bond

In your recent article (Muni Investors Succeed by Defying the Odds), you say investors should look for “quality” municipal bonds first, then yield. How should I base my determination of quality? Ratings? If so, which one do you feel has a better pulse on the muni bond market?

What to look for – and avoid – in a muni bond broker

We have a “prudent-investor” broker with another firm who put over $1 million into Puerto Rico bonds. We almost "killed" him when we found out what he did. Now we have to watch him very carefully to make small investments and gain a decent return. Any advice? We have about $2 million still invested. We understand a lot depends on the actions of the current government in Puerto Rico, which is very slow to react.

Premium paid on muni bonds is a return on principal

I have a question about municipal bonds selling at a premium: If I buy, for example, a 10-year face-value muni bond with a 5% coupon for $1,000 par and pay a 10% premium over par, I pay $1,100 to buy the bond. When the bond matures, I get back $1,000 and earn the stated yield-to-maturity when I purchased the bond. Assume that I can roll over a maturing $1,000 bond and use the proceeds to obtain a new bond selling at $1,100. To obtain the $100 premium, assume I go into my checking account.Isn't the upfront $100 premium simply returned to me over the life of the bond in the form of a slice of each coupon interest payment? That is, isn't repayment of the $100 premium simply a return of my investment ($100), not a return on my investment ($100)?

Medicare Part B and tax-exempt income

I can sign up for Medicare soon and just learned that my rate for Part B could be double the minimum most others pay because the government will go back and refigure my taxes and add my tax-exempt interest to my income. This is very unfair. Has your company, and others that sell bonds, been contacting our representatives and trying to get this changed?

Too quick to judge merits of premium muni bonds

I live in a retirement community where the chief financial officer is a volunteer and not educated in investments. We have a $2 million bond portfolio that she manages. She buys all five-year, high yield (4.00% to 5.00% in today's 1.00% market) munis with stiff premiums. A recent purchase was a $50,000 par value 4.90% California muni with a five-year maturity (we live in CA) for which she paid over $58,000. The whole portfolio is like that. Please explain why she shouldn't buy premium bonds; she won't listen to me. Or call me crazy and tell me it's OK to rack up $80,000 in premiums in this portfolio.
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