Municipal Bond Forum

I’m a California resident paying a 12% state tax. Do you think it makes sense for me to buy municipal bonds from other states?

J.M., California

What’s the upshot of President Trump’s “pledge” to wipe out Puerto Rico’s debt and how will this affect my Puerto Rico bonds? How far will the insurance on my Puerto Rico bonds carry me?

R.V., Massachusetts

If corporate tax rates were reduced to, say, 25%, do you think the municipal bond market would be OK in terms of demand?

K.S., Florida

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?

J.T., Florida

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?

L.C., California

Moody’s and Standard and Poor’s proved their fallibility in 2008 and before.

Their ratings are useless.

Why should I trust them now?

M.R.

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?

E.W., Florida

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?

R.M., Washington

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.

M.G., New York

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)?

J.B.