http://www.profitableinvestingtips.com/bond-investing/buy-insured-municipal-bonds
Buy Insured Municipal Bonds
Many municipalities are having difficulty selling bonds. Many are putting off anticipated offerings. The municipal bond insurance industry may be revitalized as investors decide to only buy insured municipal bonds. Poorly conceived pension obligation bonds have come back to haunt many issuers over the years. It turns out that playing an interest rate game in order to spend more than a city or county can afford is a really bad idea. Now a major US city has gone bankrupt. The US auto industry nearly disappeared in the wake of the 2008 market crash. However, a government bailout saved GM and the company has paid off its bailout debt and is back on its feet. Unfortunately, the same cannot be said for motor city. Now we see in the news that many municipalities, especially in Michigan, are having trouble selling bonds. For the smart long term investors it is probably time to buy insured municipal bonds. Interest rates will be higher because of the perceived risk but if you only buy insured municipal bonds you will be protected. One issue, however, may have to do with timing.
Municipal Bonds and the US Federal Reserve
We recently wrote about how the expected end of the Fed bond buying program is driving stocks down. It will also likely drive interest rates up.
The underlying purpose of the bond purchase stimulus program has been to drive interest rates down and keep them there. As the Fed gives up the job of soaking up all of the Treasury notes interest rates will rise. Fed chairman Bernanke has stated that the Fed will proceed slowly so as not to stifle the recovery.
No matter if you are buying corporate bonds or US Treasuries or municipal bonds, the market value of whatever you buy will go down as interest rates rise. Thus timing may be key even when you buy insured municipal bonds.
Long Term Investing in Municipal Bonds
A key feature of municipal bonds is the tax exempt feature. Both general obligation bonds and revenue bonds provide tax exemption from federal taxes and many state and local taxes, depending on the laws of each state. This feature offsets the fact that when you buy insured municipal bonds or the uninsured variety you get a lower interest rate than for other bond purchases. The tax exempt feature makes these bonds attractive to investors who are in a high income bracket. Not paying taxes on the interest on these bonds more than makes up for the lower interest paid. However, this feature is only useful so long as the person is making a lot of money. Once retirement comes an investor has two choices. He can simply make due with a lower interest rate until maturity or he can sell the bonds he has and invest elsewhere. Obviously if interest rates have gone up he will sell at a loss compared to the purchase price of the bond.
2. Many municipalities are having
difficulty selling bonds. Many are
putting off anticipated offerings.
The municipal bond insurance
industry may be revitalized as
investors decide to only buy
insured municipal bonds.
By: http://www.profitableinvestingtips.com/bond-investing/buy-insured-
municipal-bonds
3. Poorly conceived pension
obligation bonds have come back
to haunt many issuers over the
years. It turns out that playing an
interest rate game in order to
spend more than a city or county
can afford is a really bad idea.
By: http://www.profitableinvestingtips.com/bond-investing/buy-insured-
municipal-bonds
4. Now a major US city has gone
bankrupt. The US auto industry
nearly disappeared in the wake of
the 2008 market crash. However, a
government bailout saved GM and
the company has paid off its
bailout debt and is back on its feet.
By: http://www.profitableinvestingtips.com/bond-investing/buy-insured-
municipal-bonds
5. Unfortunately, the same cannot be
said for motor city. Now we see in
the news that many municipalities,
especially in Michigan, are having
trouble selling bonds.
By: http://www.profitableinvestingtips.com/bond-investing/buy-insured-
municipal-bonds
6. For the smart long term investors
it is probably time to buy insured
municipal bonds. Interest rates will
be higher because of the perceived
risk but if you only buy insured
municipal bonds you will be
protected. One issue, however,
may have to do with timing.
By: http://www.profitableinvestingtips.com/bond-investing/buy-insured-
municipal-bonds
7. Municipal Bonds and the US
Federal Reserve
By: http://www.profitableinvestingtips.com/bond-investing/buy-insured-
municipal-bonds
8. We recently wrote about how the
expected end of the Fed bond
buying program is driving stocks
down. It will also likely drive
interest rates up.
By: http://www.profitableinvestingtips.com/bond-investing/buy-insured-
municipal-bonds
9. The underlying purpose of the bond
purchase stimulus program has been to
drive interest rates down and keep them
there. As the Fed gives up the job of
soaking up all of the Treasury notes
interest rates will rise. Fed chairman
Bernanke has stated that the Fed will
proceed slowly so as not to stifle the
recovery.
By: http://www.profitableinvestingtips.com/bond-investing/buy-insured-
municipal-bonds
10. No matter if you are buying
corporate bonds or US Treasuries
or municipal bonds, the market
value of whatever you buy will go
down as interest rates rise. Thus
timing may be key even when you
buy insured municipal bonds.
By: http://www.profitableinvestingtips.com/bond-investing/buy-insured-
municipal-bonds
11. Long Term Investing in
Municipal Bonds
By: http://www.profitableinvestingtips.com/bond-investing/buy-insured-
municipal-bonds
12. A key feature of municipal bonds is
the tax exempt feature. Both
general obligation bonds and
revenue bonds provide tax
exemption from federal taxes and
many state and local taxes,
depending on the laws of each
state.
By: http://www.profitableinvestingtips.com/bond-investing/buy-insured-
municipal-bonds
13. This feature offsets the fact that
when you buy insured municipal
bonds or the uninsured variety you
get a lower interest rate than for
other bond purchases.
By: http://www.profitableinvestingtips.com/bond-investing/buy-insured-
municipal-bonds
14. The tax exempt feature makes
these bonds attractive to investors
who are in a high income bracket.
Not paying taxes on the interest on
these bonds more than makes up
for the lower interest paid.
By: http://www.profitableinvestingtips.com/bond-investing/buy-insured-
municipal-bonds
15. However, this feature is only useful
so long as the person is making a
lot of money. Once retirement
comes an investor has two choices.
He can simply make due with a
lower interest rate until maturity
or he can sell the bonds he has and
invest elsewhere.
By: http://www.profitableinvestingtips.com/bond-investing/buy-insured-
municipal-bonds
16. Obviously if interest rates have
gone up he will sell at a loss
compared to the purchase price of
the bond.
By: http://www.profitableinvestingtips.com/bond-investing/buy-insured-
municipal-bonds
17. Securing Your Investment when
You Buy Insured Municipal
Bonds
By: http://www.profitableinvestingtips.com/bond-investing/buy-insured-
municipal-bonds
18. If you were a bond investor and
had municipal bonds from Detroit
you have lost money. If, on the
other hand, you only buy insured
municipal bonds you will be secure
in your investment.
By: http://www.profitableinvestingtips.com/bond-investing/buy-insured-
municipal-bonds
19. As always in any investment do
your own fundamental analysis
before investing your hard earned
money.
By: http://www.profitableinvestingtips.com/bond-investing/buy-insured-
municipal-bonds
