Municipal Bond Forum

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.

J.W., California

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?

M.M., Missouri

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

M.S., Arizona

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?

S.K., New York

In your article, “Exemption Defenders“, you mention the idea of capping muni interest income at 28%. What exactly does that mean?

W.C., Virginia

“Regarding your article “Exemption Defenders Unite“, please continue to keep us informed on this activity as, I agree, it is an extremely vital issue.”  W.D., North Carolina

“I think your article is stupid and incites fear. Why did you send it? Should you be soliciting a protest or petition, I would support that.”  A.C., California

I heard a radio host say that pricing muni bonds is an art, not a science. How are daily prices determined? It would seem by supply and demand for certain issues.

C.M., New Jersey

I would be interested in your outlook on long-term Puerto Rico bonds, which are currently priced below par although they offer an attractive yield that may remain double tax-free.

R.C., Arizona

In your article, “When Flexibility Counts“, you discuss how munis can be used in a tax swap. But isn’t the tax “advantage” neutral (other than a slight timing play)? You can take a capital loss by exchanging bonds that are down, but wouldn’t it be offset by the capital gain incurred when the new bonds are ultimately redeemed or sold?

F.M., Pennsylvania

Can you educate me about tax-exempt bond amortization? On a bond we bought years ago, we paid 108 per unit. When it came due, we got our 100 per unit back. I would have thought that I had an $8 capital loss because of the sale. But instead, through TEBA, I’m told that I have no such thing. Indeed, the cost basis is back at 100. Is there a relatively simple explanation as to why this is so?

J.H., Vermont