Can you furnish basic information on the alternative minimum tax. How is it determined? What is its ultimate impact on an investor’s holdings in municipal bonds?
AMT basics
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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 1-800-367-2663 or e-mail us.
Jefferson County bonds
I own some Jefferson County bonds that are insured by Ambac. They last traded around mid-November at about 88 to 90. I have no idea if they will make their next interest payment in February, or if they will be redeemed at par in 2015. I am confused how the bankruptcy affects my bonds. Can you give me any info or guidance?
W.L., Florida
‘Total return’
In your article, “A Disappointing Year for Doomsayers,” you say, “Further confounding the self-anointed seers, municipal bonds have returned 10.10% year-to-date, even outstripping the broad U.S. Treasury index, which delivered a robust 9.95%.” Don’t you mean that the increase in return was 10.10% for munis?
A.C., New Mexico
What to do with tobacco bonds
Unfortunately, I own $95,000 (face value) of various tobacco bonds maturing between 2035 and 2046. I recently sold one for a profit – the only one I own that is on the plus side (15% bracket, no capital gains tax in 2011). Are tobacco bonds likely to fail? Tobacco bonds in Ohio and Virginia are already accessing reserve funds with 30 years to go. If I sold all of them today, I would lose about $20,000. If I held them for “x” number of years, I would reduce that by about $2,000 per year, providing the price doesn’t drop if smoking continues to subside. These were not speculative bets, they were investment grade.
I.F., New Jersey
How the administration’s proposal would affect muni bonds
Of concern is the Obama Administration’s proposal to limit the tax advantage of owning municipals only to those individuals in the lowest income tax brackets. If such a proposal becomes law, it would, most assuredly, adversely impact the municipal market in general. Has FMS expressed a position on this significant matter?
N.M.
Leverage cuts both ways
What do you think about muni managed funds like Blackrock’s MYD? It currently yields around 7.5% tax free, and 38% of the money they use is leveraged at these very low current interest rates. Yes, there is a management fee of over 1%, but they still throw off a net monthly income of over 7.5%. P.S. I’m one of your customers!
J.M., Florida
Searching for quality bonds
What makes a high quality bond? How do you search for them? How can you trust anyone in the financial markets these days?
A.R., California
Too early to know fallout from Jefferson County
What effect, if any, will the municipal bankruptcy of Jefferson County, Alabama, have on its bonds?
B.G., California
Buying, holding and happy with returns
Happy to buy and hold I buy and hold, go out at long as I can on callable dates and buy at least 5% yields and insured bonds. At first, I laddered to generate monthly income, but did well on the rates. Now that I have good monthly income, I just go for insured bonds with the best rates regardless of the date due on interest payment. Sound OK?
G.P., Oklahoma
Still sleeping fitfully in Florida
I welcomed your article about misconceptions in the muni market. As a muni investor, I’m concerned that the government will find ways to change the game and beleaguered states will default or look at Chapter 9. I still invest in high quality muni bonds and usually include bonds with insurance, if possible (no guarantees there either!). But I don’t sleep well and remain concerned as to the future of these investments and our ability to work out our challenges without making bondholders look like evil people stealing money from “Joe the plumber.”
D.W., Florida
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