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.

Bond insurers

I would like to know the difference in the various insurance companies that insure your tax-free bonds. Which are better? Most safe?

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Lengthen the maturity range

I read your article, “The Myth Behind Laddering“, with great interest. I listened to the “experts” who recommended laddering. However, I didn’t invest equal sums in 2, 4, 6, 8 and 10-year bonds. When I had a sum to invest, I would invest it all in one bond – a AAA-insured bond with call protection. For example, I would invest $25,000 in a five-year bond, and as money accumulated from other investments, I would then invest in another bond maturing in six years. After many years, I have filled in all the rungs of the ladder going out 15 years. Was this a foolish way to invest in bonds? I am writing to ask you what to do in future investing. Also, how does the yield curve come into play in all of this? Although I have been investing in bonds for many years, it seems I am still a novice. I’m hoping your Web site will educate me.

R.R., California

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Why pay a premium?

My broker is encouraging me to invest in bonds, but I don’t quite understand them. He wants to sell me bonds with a coupon higher than the yield-to-maturity, and he says I have to pay a premium price for the bonds. I know what a coupon is, but what is yield-to- maturity? Why do I have to ever pay a premium price for bonds? Why can’t I invest $100,000 and buy $100,000 worth of bonds? I can invest $100,000 in CDs now and receive $100,000 at the CD’s time of maturity. Is it cheaper to buy CDs than bonds?

F.A., Nevada

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Puerto Rico muni bonds

Why are Puerto Rico’s muni bonds in the secondary market so highly priced? I understand they are tax exempt from federal and any state’s taxes, but will they be subject to estate taxes upon the death of the holder? Isn’t this true for any state muni bond?

D.C., Colorado

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Misplaced bonds

What if I purchased some bonds and they were misplaced — could anyone cash them in?

J.K.

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Coupon rate, current yield

I’m new to your site and have found it very educational. What is the difference between the coupon rate and the current yield? Which one determines the amount earned?

A.D.

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Santa Rosa Bay Bridge bonds

I bought Santa Rosa Bay Bridge Bonds from FMS a while ago and just noticed on the site that they are listed as “Rev Technical Default. “However, you’re still selling them at a premium, and neither the Moody’s nor S&P sites indicate any problem. The most recent Moody’s rating is from June, the credit outlook is stable and there’s no watch. What’s up?

J.L., Florida

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Rolling over bond fund money to an account with individual bonds

I will be retiring within two years and will have a defined benefit plan retirement of approximately $5,000 per month. In addition, I have another tax-deferred benefit plan, 100% of which is invested in a bond fund, which has been good to me over the last two years, although it has declined in value recently. When I retire, I would like to roll the bond fund over to another tax-deferred account. The balance in the bond fund is approximately $650,000. I also have real estate valued at approximately $800,000 (no mortgages) and cash reserves of $130,000 in CDs. I have been reading the Bond Forum and know how you feel about bond funds. Can I roll over the money in the bond fund to a tax-deferred account owning individual bonds? My lifestyle is such that I don’t need additional income to live on.

G.L., Arkansas

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State bond banks

Would you please comment on state bond banks and what similarities and differences exist between their offerings and ordinary general obligation municipal bonds?

S.K., Texas

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