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.
With the current illiquidity in the market for ACA insured bonds it seems to me that their ability to write new municipal bond business is going to be severely hampered. I would also assume that any new Collateralized Debt Obligation (CDO) business is dead. How can they survive under these conditions? Where are the revenues going to come from?
B.P., New Jersey
Do you know the creditworthiness of various state tobacco bonds, and which ones, from a risk/return standpoint, offer the best relative value? Also, I am a Massachusetts resident, so could you provide any information on the tobacco bonds of Massachusetts?
G.G., Massachusetts
When I look for munis maturing in four or five years, the yield to maturity these days for AA or better is around 3.4% to 3.5%. However, I frequently see a YTM of 3.6% to 3.7%, where the only apparent difference from the surrounding bonds is that the higher yielding bond is actually a longer term bond that is pre-refunded (sometimes to 101 or 102, for example) to the earlier date four or five years from now. There are plenty of examples of this. Why should the market assign a higher yield to a pre-refunded bond with exactly the same rating as the bonds around it? I buy these pre-refunds all the time, but have never understood why they are the bargains they appear to be. Am I missing something?
D.M.
I am considering investing up to $6 million in tax-free municipal bonds. I currently live in Michigan. My concern is that the government, both federal and state, will not stop spending and therefore will continue to increase taxes. I am interested in short-term municipal bonds (I am concerned about a future increase in interest rates and want to preserve principal) that are exempt from federal, state, local and alternative minimum taxes. I am also considering moving to Florida. Can you help?
D.H., Michigan
We have a family trust that is 100% invested in New Jersey municipal bonds, with a face amount of $1 million. The current market value of the bonds is way down and is fluctuating between $965,000 and $975,000. I am trying to understand the market conditions that are responsible for this, and my inquiries to our ML broker are not providing me with anything that I can readily understand or explain to my father.
R.K., New Jersey
I found your offering of a “tobacco securitization settlement bond” interesting. Can you tell me what it is? In the past, I’ve purchased AAA, insured tax-free munis. What is the difference in quality (i.e. reliability) between what I’ve owned and the tobacco bonds? Are tobacco bonds insured or insurable?
L.R., California
Are they trying to cheat the poor people again? How will this affect the average muni bondholder?
J.P., Florida
I’d like to know what the common fee structure is when it comes to paying a broker to purchase municipal bonds. I just found your site and am not sure yet, but I may be able to buy bonds from your firm. Currently, I have about $1 million invested in muni bonds in the state of Ohio and pay a financial adviser to manage all my brokerage funds. If I had these funds in different stocks and mutual funds and was moving them around, I could agree with his fee structure. I am struggling with the fact that the majority of my investments are locked into long-term (7-10 years), low-risk bonds and I am paying his fees. With an approximate 5% return per year, I am paying almost .75% of that to the broker year after year in fees. In the next several years, I will have approximately $2 million more to invest in muni bonds. Is there a lower fee option?
P.F., Ohio
I am following the AMT situation closely because my husband and I are getting more burdened with it every year. Even in retirement, it gets worse. We were hoping for some relief by a one-time fix in 2007. Did you get a sense that this will happen before the end of the year?
M.S., Virginia
In light of the subprime mortgage problems, what would happen if an insurer were to go bankrupt? Is it like other insurance, where there are insurance pools that would step in and take over?
D.W., California
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