Over 13% Tax-Free Returns

An Atlanta area county government had guaranteed some local hospital bonds, and qualified the bonds so that interest paid to bondholders would be income tax-free.

There were rumors that the hospital was having cash flow issues to the degree that the county would have to provide the back-up funding it promised to make timely interest payments. The county, having a “less than ideal” reputation for bureaucratic blunders, caused enough doubt in the market to cause investors to begin selling the bonds, driving the price low.

We bought the bonds knowing the fears were overdone. After only a few months, an important vote confirmed timely payment of funds, and the bonds rocketed up in value.

Having received almost all available profit (that one would sometimes wait years to accrue) we were able to sell these municipal bonds for an 8.5% gain, plus the tax-free interest that had been accruing at 5.25%, in one year. A total of 13.75%

For a guaranteed investment in a hyper -low interest rate environment, this was very good. The client was excited to learn that such opportunities can still be found in the municipal bond market, for those with experience and deep knowledge of that market..