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Thread: remember my idea that muni bonds might develop VERY attractive interest rates ?

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    Banned Melonie's Avatar
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    Default remember my idea that muni bonds might develop VERY attractive interest rates ?

    (snip)" NEW YORK, Jan 30 (Reuters) - Washington, D.C.'s Georgetown University and a Nevada utility on Wednesday confirmed that a couple of their auction-rate municipal bonds had failed at auction, which experts said was believed to be the first time that this had ever happened.

    Auction-rate debt is an instrument whose rates are reset periodically, and if an auction fails, the issuer must pay a higher penalty interest rate. An auction fails when no buyer can be found and the dealer does not take the paper back.

    The confidence-rattling problems gripping bond insurers have sliced demand for the paper they guaranteed as well as other floating-rate securities. This has forced states, cities and towns around the nation to pay much higher rates than the 2-3 percent levels they had been paying.

    Tax-free issuers have sold a total of $250 billion of muni auction-rate debt and many are now reviewing whether to switch to a different kind of floating rate debt, such as variable rate demand obligations, which can be more liquid.

    Lehman Brothers (LEH.N: Quote, Profile, Research) was the dealer for both of the debt issues whose auctions failed.

    Other states and utilities that also used Lehman got hit with failed auctions of their muni floaters on Jan. 22, according to a market source. "It was a bad Tuesday," said the source, who requested anonymity"(snip)

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    God/dess Deogol's Avatar
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    Default Re: remember my idea that muni bonds might develop VERY attractive interest rates ?

    It will for California!

    14,000,000,000.00 (14 billion) @ 4% is 1,456,000,000,000.00 (1.4 trillion) for California tax payers to pay back.

    The best in financial shenanigans is yet to come.

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    Veteran Member StuartL's Avatar
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    Default Re: remember my idea that muni bonds might develop VERY attractive interest rates ?

    That is very interesting! The market is refusing their terms and demanding better. It looks as though your analysis is being proved correct.

    Good job Mel.

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    Banned Melonie's Avatar
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    Default Re: remember my idea that muni bonds might develop VERY attractive interest rates ?

    ^^^ perhaps ... but it's still very early in the 'game'

    You don't suppose that US state and local gov'ts would be stupid enough to create a new variant of the 'subprime mortgage' crisis do you ... in reference to story comments that some municipalities are considering the sale of variable interest rate muni bonds in the future ? Variable interest rate debt created the 'subprime mortgage' crisis in the first place when rising interest rates vastly increased monthly payments ... and exactly the same thing will happen to states and cities who have obligated themselves to paying an unknown future interest rate on billions of dollars worth of future muni bonds !!!

    However, the floating of such a variable interest rate bond proposal in the first place pretty much confirms that states and cities have every intention of continuing to borrow more new money by whatever means they can get it in order to continue state and local gov't spending at current levels. This
    is going to end BADLY !


    Actually, $14 billion in a new bond issue at 4% for 30 years = somewhere around a $31.8 billion total cost to the taxpayer (depending on the actual cost of bond insurance premiums). That's a downright bargain as long as the US fed continues to allow a 'real' inflation rate of 7-8% per year ! Borrowers with bad credit ratings LOVE high inflation rates, whether they be government entities or individuals !

    ~
    Last edited by Melonie; 02-03-2008 at 03:33 AM.

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