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Author: pauleckler Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 35363  
Subject: Re: building a muni bond portfoli0 Date: 1/6/2007 10:55 AM
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Welcome Howie. We're glad you could join us.

In the tax bracket you are talking about, take a close look at the closed end bond funds offered by Nuveen and Blackrock. My preferences are NQS and BLE, (ticker symbols, both traded NYSE) fed tax frees, but each firm has other similar ones including some double tax frees.

As you look for tax free bonds, keep the NQS yields in mind. Both are leveraged funds, and people point out that their yields are likely to decline until the yield curve stops inverting. (So far the declines have been smaller than anticipated when the curve first inverted.) But I don't see bankrupcy as the risk. Merely reduced interest payments.

As to buying bonds, concentrate on buying new issues if you can. Those usually have the fees paid by the issuing entity as part of the investment banking deal that brought the issue to market. You can buy them from a dealer/broker or if you want double tax free local issues, often from the trust department of your bank.

With the yield curve inverted or flat, there is little incentive to buy longer bonds. Hence the short ones you mention are fine. But note that most will be resales at those maturities as few are issued that short. That can make for higher costs and more hassles. Longer bonds might be more attractive for those reasons.

Also note that you will want to decide what bond ratings are acceptable to you. Investment grade runs from BBB to AAA. Most individuals would choose A or better or AA or better to be on the safe side.

And note that the value of your bond portfolio will change with interest rates. Some people think the feds will raise rates more to control inflation. Others think the feds are done raising rates and may even reduce rates. Reduced rates will cause the value of your bonds to increase. Prices offered will be affected by current thinking on what the fed will do.

Good luck.
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