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Author: folgore Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 35345  
Subject: Researching municipal bonds Date: 7/27/2009 7:22 PM
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Per junkman's recommendation, I've started an E*trade account to deal with bond purchases. Their commissions are very reasonable and E*trade isn't as fee happy as it was 8 years ago when I closed an account because they started charging numerous fees for those who weren't rich day traders.

Anyhow, one thing I've quickly researched are municipal bonds for my home state of Ohio. The two Ohio bonds with the highest yields were "Ohio Tobacco Settlement" and "Mahoning County Hospitals." The first is rated Baa/BBB and yields 10%. The second is rated Baa/A and yields 9%. The only information given by E*trade aside from the Call Dates is that they are "sinking funds" and I also saw the acronym "OID." Obvious questions: what are sinking funds and what does "OID" mean?

What are the risks here? I suppose for the Tobacco Settlement bond, the two negative possibilities that come to mind are 1) the possibility that the case against the tobacco companies will be thrown out and 2)the tobacco companies can no longer afford to pay the settlement money and go bankrupt or have to renegotiate the settlement. (I don't see either happening.)

For "Mahoning County Hospitals" (I actually come from this part of Ohio), I assume they've borrowed money (via the bonds) to improve the hospitals. Mahoning County has had a somewhat depressed economy for a rather long time -- since the Steel mills closed down -- and one of their largest employers is a GM plant which is also a vulnerability.

What am I missing? Where can I go to find out more about both of these bonds? There's a part of me that looks at the large yields and wants to buy, reasoning that with at least a BBB rating, there's an 80% I will receive the yearly yield and get back the principal when the bonds are called. But would I be right in this assumption?

I don't suppose anyone has done for municipal bonds the kind of analysis that junkman does for corporates?
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