Municipal bonds also have call provisions that allow the issuer to redeem bonds before their term expires. For example, a 30-year bond will typically have a seven-year call. If interest rates have declined over the seven-year period, the state will redeem the bonds and then issue loweryielding securities. Obviously, this is not in your favor, and you may find it irritating.

Munis are also subject to wide swings in value. State economies are more volatile than the national economy. When a state economy is booming, state tax revenues are high and there is little need to issue munis. At the same time, state residents’ incomes are high. They want munis, which pay tax-free interest. The combination of low supply and high demand leads to overpriced, scarce bonds. When a state is in recession, tax revenues decline.

The state issues a hoard of bonds to keep going just at the time when it can least afford to make interest and principal payments. Muni interest rates rise to compensate for the reduced security. Older munis lose value.

Consider how you react to wide price swings.

Unmanageability is a big issue with municipal bonds (munis). (Munis are bonds issued by states and local governments.) State and local government bonds are less secure than federal government bonds. The federal government can print money to pay bond interest and principal. With munis, defaults are possible, because state and local governments do not have the power to print money. Although defaults are rare, they occur. Many munis are secured by specific projects. If the project is bad, the muni could default.

Other munis are secured by a general fund. However, mismanagement of the general fund can endanger your muni. For example, the Orange County (California) general fund in 1993 and 1994 was run like a hedge fund. The fund manager invested in derivatives and leveraged up the fund just when interest rates rose dramatically, bankrupting the county. This type of mismanagement can lead to feelings of outrage among bondholders.

Munis are sometimes insured, but the insurer needs to be solid for the insurance to be any help. State and local governments sometimes establish a fund, known as a sinking fund, to be used to pay off specific bonds when they come due. These bonds are known as prerefunded bonds. Prerefunded bonds are more secure as long as the sinking fund is never attached.

Occasionally, bond investors experience complete powerlessness. When interest rates and inflation rise dramatically, the value of bonds declines dramatically. If prospects are for continued high interest rates and inflation, bond interest will never compensate for lost purchasing power. In the 1960s, government bonds paid 5 percent or less in interest. During the 1970s, inflation averaged better than 8 percent. Bond investors who bought in the 1960s sat by powerless as the purchasing power of their principal and interest dwindled.

On the other hand, treasuries are the best asset class during extended periods of deflation. In the 1930s, treasury savers had to guard against grandiosity rather than inferiority. Treasuries were the best asset class.

Selling government bonds before maturity brings up feelings of regret if interest rates have risen and the bonds must be sold for less than face value. Commissions, as well as spreads, must also be paid.

Letting bonds mature eliminates both commissions and spreads. Still, when bonds mature, the saver is faced with the dilemma of what to do with the principal. For some, the answer is simple. Others experience anxiety.

Savers who fret over what to buy may be more comfortable in bond funds where the money manager makes all the buy decisions.

Often, managed funds turn out to be different than expected. Savers primarily want their principal returned when a note or bond matures. Some funds are managed without regard to principal fluctuations. Many savers have found the government fund they purchased paid out both principal and interest so that at the end there was no principal left. Alternatively, the manager of the fund borrowed extensively to juice the returns from the fund and instead lost a substantial portion of the principal. You are likely to feel betrayed if you unwittingly purchased a fund with fluctuating principal values.

Bond investors often experience regret and resentment when other asset classes have dramatic rises. Longer duration bonds cause the most distress. Savers who put money into 30-year Treasuries in 1994 received annual yields up to 8 percent. They had to stand by and watch as stocks returned better than 20 percent a year for the next five years. However, the dramatic decline in 2000-2001 may have given them some satisfaction.

Volatility is an issue with notes and bonds that mature in two or more years. Before OPEC, floating interest rates, interest rate swaps, floating exchange rates, budget surpluses, and electronic trading, treasury bonds had low volatility. Today, Treasuries can lose 20 percent of their value in a month. Savers waiting for bonds to mature will feel fear when they learn of the current value of their holdings. They must be able to process the fear and wait to maturity. Savers who cash out may have regrets and resentments when bond prices turn up again.

The complexity of purchase may lead you to rely on a salesperson. Government bonds are purchased from brokers, banks, and directly from the federal government. Buying from brokers and banks can bring up issues of trust. Whereas you may have a great degree of confidence that government bonds are secure and the tax consequences predictable, you may not trust that the product you are being sold benefits you as much as it benefits the salesperson. Buying treasuries directly from the federal government might also create fear. You may believe that with a salesperson holding your hand, you would find a better product at a better price.

Government notes and bonds are often sold in bundles as managed mutual funds, unmanaged index funds and trusts, or as closed-end mutual funds. Here the issues get more complex. Built-in resentment and regret are inevitable. Fees and commissions must be paid to mutual fund managers, brokers, and closed-end fund managers. These funds rarely do better than notes and bonds bought by an individual and held to maturity. It is easy to regret the fees paid for poorly performed services. Yet some savers feel the need to use professionals to pick bonds for them. They would have free-floating fear and worry if they were to construct a portfolio of bonds on their own. You must ask yourself how you are likely to react.