Municipal Bond Forum

Our financial adviser says long-term municipal bonds “could have a lot of principal risk built into them because of their interest rate sensitivity. The solution is a combination of intermediate-term municipals and a portion of high-income munis to complement them and still maintain decent yields with much less interest rate risk.” We’re confused by the term “interest rate sensitivity.”

M.S.

Do you still believe in the premise of your article, “Muni Supply to Remain Tight in 2015“? CNBC today made it sound quite the opposite.

M.

In your article, “The Best Play for Today,” you say that the best values are premium bonds, even though it may seem “counterintuitive to many investors” (myself included). You have said in the past that one cannot claim a capital loss when a premium bond matures, even though one must pay tax on capital gains when a discount bond matures. My question is, can one claim a loss if a premium bond is called well before maturity, leading to the so-called “yield-to-worst”?

M.M., Tennessee

In an e-mail to me, you recommended a “AA”-rated premium bond maturing in 2043 and callable in 2020, with a yield-to-call of 2.60%. You said it represented “outstanding value.” I don’t agree. We’re in a 3.30% market for that quality of bond, and it’s almost certain to be called on its call date in five years unless interest rates rise dramatically.

E.O., Alabama

Please don’t deride Meredith Whitney’s powers of prediction (“Know Your Expert“)! I thank her and FMSbonds for the greatest muni bond buying opportunity of my lifetime. I have her picture hanging in my office and eagerly await her next prognostication. My only complaint: The bonds are being called before I am interested in losing them.
A.B., Florida

You’ve moved away from tobacco bonds (“Clouds Darkening for Tobacco Bonds“), but they have differing parameters depending on the issue. Do you dislike the higher-rated ones (“BBB,” “A”) as well?
D.L., New York

I had another thought after reading your latest article (“Know Your Expert“): I agree on continuing to buy tax-free bonds regardless of what the so-called gurus say. The only problem is, there are no bonds to buy. A perfect example is the bond offerings on your Web site. There used to be six pages, now there are fewer. What’s the secret of buying quality bonds at fair prices in today’s market?
L.S., Texas

It’s my understanding that under the new tax rules, those in higher brackets may get hit twice on “tax-free” income. If modified adjusted gross income rises above $200,000 for a single filing taxpayer, a 3.8% surtax is imposed on all investment income, regardless of source.

R.C., Illinois

If I buy only insured muni bonds, do I still need to be concerned with the bonds’ rating?

G.E., Louisiana