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BUYING N.Y. MUNICIPAL BONDS

Investors who live in New York and buy its tax-free municipal bonds should not sacrifice safety in order to ensure that all their interest earnings are exempt from state taxes, says the Lynch Municipal Bond Advisory, a monthly newsletter published in New York City. "Investors in high-tax states may rebel against this notion, but they should understand that high-tax states frequently have the most problems to solve and are consequently more vulnerable to credit downgrading and consequent price erosion," it says. The "downgrading" it refers to happens when credit rating agencies give lower ratings to municipal bonds of states that have fiscal problems. The newsletter suggests that 75 percent of a New Yorker's municipal bond portfolio consist of bonds issued by other states.

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