Philip Fischer - Investing in Municipal Bonds: How to Balance Risk and Reward for Success in Todays Bond Market

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For my wife

Chapter 1
A Little History

Chapter 2
A First Look at Municipal Bonds

Chapter 3
Reading an Official Statement

Chapter 4
A Revenue Bond Example

Chapter 5
Conduit Financing

Chapter 6
Refundings

Chapter 7
Elements of Taxation

Chapter 8
Taxable Municipal Bonds

Chapter 9
The Microstructure of the Municipal Bond Market

Chapter 10
State and Local Economies

Chapter 11
The Yield Curve

Chapter 12
Municipal Bond Yield Calculations

Chapter 13
Elements of Portfolio Structuring

Chapter 14
Derivatives

Chapter 15
The Checklist

This book is designed to help investors, issuers, and regulators come to terms with the changes that are taking place in the municipal bond market. Having worked with participants in the market for decades, I believe theres a need for a better understanding of the function and functioning of municipal bonds. The use of the municipal bond market to allow taxpayers to pay as they use public projects is an essential tool for state and local governments. The way in which the municipal bond market operates, however, has changed dramatically over the last several years with the introduction of new forms of taxable municipal bonds and the demise of the auction-rate market and a number of bond insurers.

This book is designed to offer a practical approach to the municipal bond marketan approach that lies somewhere between financial theory and the minutiae of bond calculations. A little of both is required.

This has been a tempestuous couple of years in the municipal bond industry, and the municipal market today is far different from what it was when I began studying municipal bonds in the 1970s. Then the municipal bond market was smaller, simpler, and often disregarded. The world is different now, and governmental markets are seen as the backbones of finance.

Governmental marketsparticularly the U.S. municipal bond markethave contributed mightily to the growth of the nation, yet they continue to be the subject of continuous tinkering and criticism from our political establishment. Some improvement is always possible, and no market has performed perfectly in the last several years. That said, the government officials who are criticizing the market are often the least likely to improve it.

Micromanaging market processes to achieve social distributions can significantly inhibit the functioning of a market, to the detriment of all. Traditionally, the municipal market has enhanced private-market development through investments in public infrastructure and education. In the future, we can expect that this market will be just as essential, even as infrastructure becomes more ethereal. The municipal bond market will continue to play a critical role in developing the digital and physical highways of the future.

This book is the realization of many years of studying and practicing public finance. It began with my fine professors at the University of Oregon, where my first academic studies were on the structure of the municipal bond market. Later my colleagues at Citi, Salomon Brothers, and especially Merrill Lynch helped me understand the practical side of the business. I am also grateful to John Sprung and others for their helpful comments on the book.