Many investors own municipal bonds for the tax-free income. But what would happen if your munis were downgraded by one of the major rating agencies? Or worse yet, what if you didn’t even know there was a change in your bond’s health until you received your next quarterly brokerage account statement? Wouldn’t you like to have more of a warning?
Here are a few things that you can do to keep on top of your municipal bond portfolio so that you aren’t caught by surprise.
The Bond Market Association (http://www.investinginbonds.com/munitrades/) provides trading data that you can search based on your bond’s CUSIP Number. You’ll be able to find out if Standards & Poor’s, Moody’s, Fitch IBCA, or Duff & Phelps made any recent changes to your bond’s rating. This will also be an opportunity to see if there has been a change in yield to maturity. A rapid increase might mean that your bond has gone down in value and other investors may know something that you haven’t discovered yet.
Municipalities will report recent activities that could affect your bonds in their annual financial statement or possibly on their website. Another place that you might be able to find this information is DPC Data (http://www.dpcdata.com/events/eventSearch.cfm). You can search your CUSIP Number, your state, or by specific events such as delinquencies, bond calls, or defaults. After you find information about your bond, you’ll have to pay $2.50 for each detailed report.
Gone are the days when you could stick municipal bonds in a safe-deposit box, clip the coupons every six months, and wait until they mature. Financial markets, interest rates, and the stability of municipalities can frequently change. Therefore, municipal bonds need to be actively managed just as you should all of your investments. If you would like a free credit ratings analysis of your bond holdings, click below.