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Friday, November 19, 2010

Interest rates are on the rise

For mortgages, but particularly for state and local bonds. Municipal bond deals are cratering all of a sudden. Heck of a time to be building a mystery train to Milwaukie and talking about starting up another "urban renewal" district.

Comments (6)

Oh joy, I can hardly wait until the next regime has to re-fi all that debt Sam/Randy have sold.

They need to do this since they keep digging deeper hole and borrowing more by re-fis is about it - Unless you want to pay $1000/month for water.

...or north of a half billion dollars in PPS bonds in round 1 of at least two and maybe more contemplated PPS bond issues.

Then again, all rates have been at historic lows. Those rates were bound to go up sometime. Its just odd that the muni rates are leading the charge.

Could it be that the ratings agencies (Moodys, S&P) are actually doing real "due diligence" as opposed to what they did with the mortgage backed securities, and that the buyers, too, are looking at the underlying muni finances a little closer?

There are four things working against municipalities. (1) There is a rush on to sell "build America bonds" before the program expires, so supply is great. (2) The feds said they were going to buy US treasuries to drive rates down, but did not and that left a lot of people hanging causing a sell-off (higher rates, tough market to sell munis into). (3) The obvious, municipalities are facing deficits. (4) Some households that would have bought municipal bonds in the past cannot do so because their personal financial situation has gotten worse.

Yesterday's Wall Stret Journal's front page news story was about the large amount of California State Bonds not sold so far. And how the few buyers out there are looking for much higher rates of return.

"Too big to fail" is just as much about government agencies, local and state governments as it is about financial corporations. Without federal assistance, California government sure appears headed towards default (which tecnically it's already issued IOUs in recent years in lieu of payments). Currently, California borrows $40 million per day from the federal government to keep its unemployment payments going.

I wonder if the GOP taking the House might cutback these government to government bailouts. Then maybe we get more financial prudence in governance at the local and state levels. Hopefully, it's bad news for TriMet and Portland cityhall. Maybe the punchdrunk blue voters of Multnomah start to realize some pain from putting too much trust in local and state governments. The longer things go on as they are, the bigger the hurt when the day of reckoning hits.

"I wonder if the GOP taking the House might cutback these government to government bailouts."

Yes but it will increase the bailing out of bankers and other friends of the Reds so it will be a wash.

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