ORLANDO, Fla. -- Many of the nation's individual investors will spend the next few weeks figuring out how to reinvest their money when their bonds mature or are refinanced.
Financial experts predict that July 1 will be a record day for bond refunds. An estimated $6 billion in principal will be returned to municipal bondholders and additional billions to owners of corporate bonds.
Stockbrokers such as Edward "Skip" W. Strohm III of Prudential Securities Inc. in Orlando say some clients will put the cash in stocks because newly issued bonds will yield such low returns.
Refinanced tax-exempt municipal bonds will provide roughly a 6 percent return, compared with 10 percent or more during the 1980s.
"Bond redemptions will do nothing but help the stock market," Strohm predicts, noting that even conservative individuals may be tempted to assume the greater risk of stocks.
Some people -- especially retirees -- who are adamant about not paying federal taxes on their investments will simply have to accept lower returns upon reinvesting in municipal bonds, says John S. McNally Jr., manager of Dean Witter Reynolds Inc. in Orlando.
Owners of maturing and refinanced corporate bonds, which are taxed, would be more likely to buy stocks, McNally says. Stocks of utilities and large stable corporations paying high dividends usually appeal to bondholders, he says.
The reason investors face choices now is that corporations, municipalities and other bond issuers are refinancing their debt to lower their interest costs, says Andy Nybo, research analyst for the Public Securities Association in New York.
Most bonds have "call" provisions, which enable issuers to halt interest payments and repay owners the amount of money they originally invested. Bonds may be "called" away from investors at a specified time, typically in 10 years.
Bond call and maturity dates usually fall in January and July, so the financial services industry expects an onslaught of investment conversions in those months during the next several years. Nybo forecasts that 1995 will be a big year for bond redemptions, possibly exceeding 1992.
Recent confusion surrounding redemptions increases the popularity of bond mutual funds, McNally says. Because those funds are professionally managed, investors don't have to worry about having their bonds called away.