This week saw tax-exempt rates break new records. Yesterday, the 30-year Municipal Market Data (“MMD) came in at a record 3.29% and the Bond Buyer 20 GO index dropped to 3.62%, its lowest since 1967. These all-time low rates are the result of a classical supply-demand imbalance: more buyers than sellers.
On the demand side, tax-exempt muni bond funds have experienced net cash inflows, fueling a buying binge in both the primary market (new issues) and the secondary market. Retail investors have clearly gotten over the mini-panic that followed Wall Street analyst Meredith Whitney’s appearance on “60 Minutes” a year ago as she predicted municipal defaults in the hundreds of billions of dollars in 2011.
On the supply side, borrowers went on a crash diet in 2011, curtailing debt issuance across all municipal sectors.
Much to the chagrin of bond underwriters, the fast may be continuing in 2012.
With more buyers than sellers, rates are hitting record lows. More refundings are likely to get done in the coming weeks, but rates may not pick up until borrowers start returning to the table to fund new projects.
Hospitals who postponed refundings due to insufficient net present value savings may find this an opportune time to revisit their plans.
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