New York City Comptroller William C. Thompson, Jr. today issued, “The C-Note,” his periodic column focusing on economic and budget issues affecting New York City. Today’s column is titled: “Investment Options Now – Are City Bonds the Right Choice For You?”

You can view the column by visiting www.comptroller.nyc.gov and by clicking on the ticker at the top of the home page. In previous weeks, the Comptroller has presented his priorities to help the City weather the storm created by the current economy and provided an outline to better train our future workforce by streamlining the current outdated skills model used by the City.

THE C-NOTE: “Investment Options Now – Are City Bonds the Right Choice For You?”

By Carol S. Kostik
Deputy New York City Comptroller for Public Finance

In recent weeks, talk in personal finance news and advice columns has turned to municipal bonds.

A Wall Street Journal article on November 5th, “Thinking Local: Muni Yields Rise to Rare Levels,” was typical in describing how individual investors – alarmed by the stock market and unexcited by low yields on Treasury debt – are looking more closely at municipal bonds.  A key part of the attraction is that tax-exempt bond yields have risen sharply in the past two months.  For example, the Bond Buyer’s 20 Bond index, which has averaged 4.52 percent over the past five years, reached as high as 6.01 percent in mid-October before falling to 5.24 percent last week – still .72 percentage point over the five year average. 

Individual investors are currently New York City’s most important investor segment for our fixed-rate, tax-exempt bonds.  In the first nine months of 2008, “retail” investors purchased a total of $1.37 billion New York City General Obligation (“G.O.”) bonds in five separate City bond sales.  Their orders accounted for 44 percent of such bonds sold in the five G.O. sales. Since the financial sector turmoil began in September, New York City has conducted an additional General Obligation bond sale and two Transitional Finance Authority Building Aid Revenue Bond sales.  Retail’s total share across these three sales grew to 68 percent of bonds sold.   Retail demand also underpinned a highly successful New York City Municipal Water Finance Authority sale in October.  This individual investor demand for New York City bonds has enabled us to continue funding the City’s critical capital needs despite the recent market turmoil.

New York City strives to reach individual investors in several ways.  Most importantly, we conduct “Retail Order Periods,” a one-to-three day pre-sale opportunity where small investors receive first priority to buy the bonds offered.  We advertise the bond sales ahead of time on a wide range of radio stations to alert buyers and their brokers.  We invite a large group of broker-dealers to participate in selling our bonds to individual investors, so it’s easy to find a broker or use an existing account.  And we regularly update information about New York City and municipal bonds on the Comptroller’s Public Finance Bureau web pages.   

New York City strives to be a responsible borrowing partner with our investors through prudent financial management and by providing frequent and thorough disclosure about the City economy and finances.  We also address adverse market developments when we can; for example, when some municipal auction rate bonds began to experience difficulties earlier this year, we moved quickly to refinance those bonds and restore liquidity to our investors. 

But are New York City bonds the right choice for you?  Each investor has to decide for himself or herself.  New investors should start with the bond fundamentals:

• How do bonds fit in to my overall financial and investment portfolio? Any investment should be part of an overall strategy that fits your personal circumstances and goals.

• How much money do I have to invest?  Individual bonds are usually sold in $5,000 denominations. If you are planning a smaller investment, or want to diversify your bond investment, look into bond mutual funds.

• Do I benefit from tax-free income?  While the obvious answer might seem to be, “of course,” the correct answer depends on your tax bracket and what the comparable interest rates are for taxable and tax-exempt bond alternatives. You can learn how to calculate “taxable equivalent yields” on investor education web sites such as the Municipal Securities Rulemaking Board site, which you can access though the “Links” page.

• What are the risks to owning bonds?  You will want to understand both the general risks applicable to any fixed income security, like municipal bonds, and the credit and risk characteristics specific to the bond you are considering purchasing. 

If you decide you are interested in looking at specific New York City bond sales, check our “Upcoming Financings” to see what sales have been announced.  Then contact your broker or financial advisor to obtain an Official Statement and preliminary interest rate information and to discuss the suitability of this investment for you. 

New York City’s General Obligation Bonds and bonds of the New York City Transitional Finance Authority; and the New York City Municipal Water Finance Authority; fund important capital needs such as schools, roads, parks, and the water and sewer systems.  Investing in these bonds helps keep New York City strong. 

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