To what extent are foreign purchases of longer-term treasury securities responsible for the present slope of the curve?
On “A Forward Strategy for the Inverted Yield Curve”
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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.
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On “A Forward Strategy for the Inverted Yield Curve” – cont’d #2
So you’re saying, don’t keep your eggs in one basket? If I can get a higher yield short term with a portion of my portfolio, and swing the higher yield earned into the long terms (before they’re bought out), that would be the best, right? Thanks for your thoughts. Your article was short, precise and good for average investor like me!
S.P., New Jersey
ERP call feature
I understand that certain bonds, particularly facility revenue bonds (i.e., hospital or housing bonds), often will carry an ERP (Extraordinary Redemption Put) call feature to cover a cataclysmic event to the facility whereby the bonds could be called, typically at par. In the case of an escrowed bond whose underlying facility has such an event and their bonds are called, would the escrowed bonds also be called? Assume that the bond has been properly defeased and now has Treasuries supporting the payments and redemption. Could, or why would, the bond be called? It is no longer dependent on the revenue stream of the facility.
J.M., Michigan
It’s the law
After following your Web site and recommendations for several years, I decided to purchase some bonds from you. When I went to open an account, the very first question I was asked was my social security number and date of birth. If I opened an account, I would expect to give you my social security number, but my birth date is none of your business, except to assure that I am a legal adult. Consequently, I have given up the idea of switching brokers. You might want to rethink your policies.
Why go long now?
With the inverted Treasury yield curve and the muni bond curve being visibly flat, do you still advise investors to buy long muni bonds? Why would one want to risk buying long-term bonds when there is no reward to extend out in the curve? What do you think about investing 80% of one’s portfolio in short term bonds and 20% in equities?
M.V., California
‘Discounted’ fund
I recently purchased several closed-end muni funds at a 12% to 15% discount to NAV. On average, the funds all contain at least 75% AAA bonds. How does one compare this fund “discount” to owning individual bonds?
M.S., Florida
Tax-free income and the EIC
We have a client who has a tax-free bond, therefore the dividends are not reported on his tax return. However, he qualifies for the Earned Income Credit and the amount of dividends would put him over the threshold. Does he still not have to report the dividends in this case?
D.C., Virginia
On “GM Proposes Multi-pronged Turnaround Strategy”
I read your analyses regularly and thank you for them, but you have stumped me with the GM piece. Is FMS opening a corporate (taxable) bond division? Or has the muni market been so flat for so long that y’all are pushing into equities? Or is this a setup for munis from localities that GM is abandoning? It might help to connect the dots for your readers by explaining exactly how or whether GM’s recent share price and corporate bond prices make a difference to muni investors and to which investors, specifically.
S.P., North Carolina
Yield strategy
It seems to me that your firm promotes a yield strategy over a total return strategy. I am interested to know if there is any research that demonstrates that you could have a very low total return year after year while realizing a much higher yield and growing your cash at a steady rate when all is said and done.
L.V., CFA, Nebraska
Santa Rosa Bay Bridge zeros
I was wondering if the Santa Rosa Bay Bridge Zero Coupon Issue CUSIP 802576BU1 (AAA MBIA-IBC Insured) bonds are in default and if this issue is subject to an extraordinary redemption where they can be called at their original issue price of 23.449?
S.W., Florida
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