Municipal Bond Forum

I enjoyed your piece, “The Mets, the Pundits and the ‘Old Perfessor,’” about the prevalence of bad advice offered by so many so-called experts. I have found that some brokers recommend new issue long-term bonds hot off the press with miniscule yields. Your firm offers previously issued bonds trading with significantly higher yields to call. Maybe a follow-up to your article could be entitled, “Avoiding the Foul Tip!”

I.S., New York

What distinction exists between escrowed and pre-refunded municipal bonds? Also, does it only make sense to invest in these types of bonds.

N.M.

I have a question about the way rating agencies work. Certain municipalities across the nation and in California are rated “AAA,” while the U.S. Treasury is rated only “A.” This discordance is silly. What are your thoughts?

J.S., California

I read your article, “Don’t Try this at Home,” and was wondering whether I should sell bonds that have appreciated and use the profits to buy other bonds, or just hold the bonds I own.

G.S., New Jersey

In your article, “The Upside of Lower Rates,” on issuers who refinance or pre-refund their bonds, I do not understand the math in the example explaining the yield drop after the bonds are escrowed in Treasuries. I understand the yield would be lower because of the additional $7,000.00 invested, but I cannot arrive at a figure of 2%.

E.L., Washington

I think we were able to understand the process you describe in the article, “The Upside of Lower Rates.” However, we had some difficulty with the concept of replacing the bonds with higher- yielding bonds that are not sub par. Does it make sense to sell the portfolio while the bonds are at a higher value? Can the sale of pre-refunded bonds be replaced with safe bond investments?

V.A., Nevada

What was is the default rate in the last year for non-rated munis? There are many bonds that are not rated by Moody’s, and I’m asking about those issues.

G.K., Illinois

I´m new in the municipal bond market. Can you tell me where to go to find the credit rating for states and cities. I have been in the stock market for 35-plus years. I’m now retired and looking for something a little more stable.

P.D., Michigan

I’m a client and read your article, “Moodys: Muni Default Rate to Remain Low.” You said that only one general obligation issuer, out of the 9,700 rated by Moody’s, defaulted. I thought GOs couldn’t default? Also, I thought states, like California, can’t file for bankruptcy and default on their GO bonds. Correct?

D.W., California

I’ve been a long-time client and have been following FMS’ advice on taking tax-free income and holding my bonds to the end for return of capital. I am now 80 ½ years old. I read your article, “Bad Medicine for an Imaginary Illness,” and cannot see how it applies to my specific situation. As a client who is over 80, what do you recommend I do with my long-term holdings?

W.H., Florida