Bond Accountability Commission 2 Recommendations Page 59
corresponding Treasuries. That contrasts with more typical ratios of between 72% and 91%.50 During 2009, the Bond-Buyer 40-Bond Average had declined to 5.19% on April 23, before rising again to 5.65% on June 11 and then declining again as “[m]unicipal bonds … headed for their best July performance in seven years,” followed by the “best August performance in five years.” 51 By October 1, the 40-Bond average had declined to 4.47%, as the supply of tax-exempt securities dropped sharply, partly in response to the growth in issuance of BABs and other taxable municipal securities. 52 On October 1, the Bond Buyer’s 20-Bond index was at its lowest point in more than 40 years. 53 The decreased rates then discouraged investors and drew more issuer volume into the market. 50
Seymour, “With the Muni-Treasury Ratio Back to ‘Normal,” What Comes Next?” (Bond Buyer Online June 22, 2009).
Cooke, “Municipal Bonds Headed for Best Performance in July Since 2002” (Bloomberg.com July 30, 2009); Cooke, “Municipal Bonds Headed for Best August Performance Since 2004” (Bloomberg.com Aug. 28, 2009) (“State and local government bonds headed for their best August performance in five years as sales of Build America Bonds damped tax-exempt issuance and municipal mutual funds extended their unbroken streak of inflows in 2009.”)
See also Cooke, “Muni Yields Plummet to 42-Year Low as Issues Slow, Funds Grow” (Bloomberg.com Sept. 25, 2009) (“Even with the record fund flows, this year’s rally in municipal bonds has an ‘artificial or manufactured feel’ because of the creation of Build America Bonds, [Tom Dalpiaz of Advisors Asset Management] said.”) See also Seymour, “Munis Surge as Buyers Clamor for Supply” (Bond Buyer Online Sept. 17, 2009) (“Municipals surged to match record-high prices yesterday as many traders doubted whether the latest wave of new bonds can satiate a market still starved for paper. … Municipal bonds have been on a practically unbroken winning streak for more than a month. … Demand has been bolstered by the prospect of higher taxes and almost $54 billion in investments in muni bond mutual funds this year. Supply has been eviscerated by the unavailability of letters of credit for variable-rate debt obligations, as well as the transference on bond sales from the tax-exempt market to the taxable market through the Build America Bonds Program. … Some market participants have said a flurry of new supply is the most likely threat to this rally.”); Saskal, “Lower-Rated Credits Getting More Access to Market, Panelists Say” (Bloomberg.com Sept. 17, 2009) (“As more time passes from last year’s credit crisis, market access for lower-rated credits is beginning to increase, according to some panelists at [a Bond Buyer conference].”)
Scarchilli, “Indexes: 40-Year Lows” (Bond Buyer Online Oct. 2, 2009) (“The Bond Buyer 20-Bond index of 20-year general obligation bond yields dropped 10 basis points this week to 3.94%. This is the lowest level for the index since Aug. 10, 1967, when it was also 3.94%.”)