Hard times ahead for Ogden's borrow and spend mayor. From yesterday's Los Angeles Times story:
"The credit crunch is taking a heavier toll on the municipal bond market, a favored sector for individual investors.Interesting related story from The San Jose Mercury News: Vallejo bankruptcy could have far-reaching impact. From that story:
Yields on tax-free muni bonds surged Thursday for the 12th straight session as many buyers stayed away. That's bad news for California, which plans to sell bonds next week to raise $1.75 billion for infrastructure projects.
The annualized yield on an index of 40 long-term muni issues nationwide tracked by the Bond Buyer newspaper jumped to 5.33% on Thursday, up from 5.20% on Wednesday and the highest since 2002. The yield has rocketed from 4.74% five weeks ago.
A Bloomberg News index of 20-year California general obligation bonds sported a yield of 5.16% on Thursday, up from 4.63% five weeks ago.
Bond yields rise as the market prices of the securities drop -- a sign that investors are balking at putting their money into the issues.
In many cases, muni yields are above what taxable U.S. Treasury issues pay, an unusual occurrence. A 30-year Treasury bond pays about 4.51%.
Yet "there are very few buyers out there now" for munis, said Bob Fields, an expert on the market at bond giant Pacific Investment Management Co. in Newport Beach.
The normally low-key muni market, where states, cities and other municipalities borrow to fund their operations, has suffered a series of punches since late last year that have left investors wary. [...]
"Many muni bond analysts emphasize that the main problem facing the market is excess supply at a time when nervous investors are conserving cash. Supply and demand are "deeply out of balance" in the muni market nationwide, according to a recent report from Municipal Market Advisors, a Concord, Mass.-based research firm. [...]
"Still, default worries may grow as the economy weakens, some analysts caution. The result could be that investors demand even higher yields on muni bonds to compensate for a perceived increase in risk, said Jim Lynch, head of Lynch Municipal Bond Advisory in New York. "There should be no rush to buy here," he said."
"Experts say Vallejo's case undoubtedly will raise speculation about municipal bonds that cities use to fund facility improvements and other activities because the once-certain guarantee of profitability will suddenly look poisonous to investors. [...]Yes, gentle readers, impending municipal bankruptcies are just another factor which will likely affect the marketability of municipal bonds in an already shaky bond market. Percipient municipal bankruptcies of course introduce the "wild card" of "uncertainly" into the bond market -- a market which is normally played by only the most cautious and prudent investors -- a market which is allergic to surprises.
"If bond holders are hurt by a bankruptcy, then future lenders will probably put constraints on elected officials' ability to make promises while in office that must be paid after they leave," said CPA Marcia Fritz, vice president and treasurer for California Foundation for Fiscal Responsibility, which advocates for pension reform.
"It's almost a relief that it's finally coming to this in Vallejo because it will be an example of what happens when you've got a lot of people with their fingers in the cookie jar," she said. "I saw this coming years ago."
We do hope our mayor and city council/RDA board are keeping a close eye on developments in the Muni bond market, which is showing all the signs of a market preparing to tank. Perhaps it's time to back off on the grand plots and schemes... maybe just a little bit?
We thank gentle reader Danny for this morning's initial heads-up on these stories. Definitely something to think about as Emerald City's grand plotters and schemers barrel on full speed ahead, borrowing and spending like madmen.
Comments anyone?
