| Bonds Online |
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| 5/10/2013Market Performance |
| Municipal Bonds |
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S&P National Bond Index
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3.00% |
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S&P California Bond Index
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2.96% |
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S&P New York Bond Index
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3.13% |
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S&P National 0-5 Year Municipal Bond Index
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0.70% |
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| S&P/BGCantor US Treasury Bond |
400.09 |
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| Income Equities: |
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| Preferred Stocks |
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S&P U.S. Preferred Stock Index
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848.03 |
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S&P U.S. Preferred Stock Index (CAD)
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636.26 |
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S&P U.S. Preferred Stock Index (TR)
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1,701.05 |
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S&P U.S. Preferred Stock Index (TR) (CAD)
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1,276.26 |
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| REITs |
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S&P REIT Index
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174.07 |
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S&P REIT Index (TR)
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425.30 |
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| MLPs |
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S&P MLP Index
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2,469.58 |
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S&P MLP Index (TR)
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5,428.50 |
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See Data
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(BN) Muni Market Prepares for Lost AAAs After U.S. Credit Cut |
Bloomberg News - August 8, 2011 - By Michelle Kaske
Standard & Poor’s plans to release “later today” reports on asset classes, including municipal bonds, affected by the company’s Aug. 5 downgrade of the U.S., said John Chambers, head of S&P’s sovereign ratings committee.
“As far as U.S. public finance is concerned, other than some particular transactions that are directly linked to the U.S. government, we said we would be looking carefully at some of the indirect effects, if you like, on possible fiscal consolidation programs in Washington as they might impact the budgetary decisions of state and local governments,” he said on a conference call today.
S&P is likely to cut its ratings on municipal debt secured by the federal government, such as pre-refunded bonds, tax- exempts backed by U.S. agencies, and credits that are most dependent on federal spending, Peter DeGroot, head of municipal research at JPMorgan Chase & Co., wrote in an Aug. 5 report distributed after the federal downgrade. The New York-based ratings company said at the time that it would release a statement on state and local issuers in the $2.9 trillion municipal market.
“There will be hundreds and hundreds of municipal downgrades, which will not do well to bolster investor confidence,” Matt Fabian, a managing director of Concord, Massachusetts-based Municipal Market Advisors, said in a telephone interview. “Treasuries may be able to shake off a real impact from the downgrade. Munis I’m less sure about.”
‘Realistic and Credible’
S&P cited politics in negotiations to lift the debt ceiling and said lawmakers failed to reduce spending enough.
It had said on July 21 that a U.S. downgrade based on a failure to come up with a “realistic and credible” plan to reduce its budget deficit would be the “least disruptive” scenario for municipal ratings. That’s because it would mean Congress avoided making significant cuts to the funding of municipal credits not directly linked to the federal government, S&P said.
Municipal issuance has fallen amid the U.S. debt-ceiling impasse. The slump and signs of a slowing economy helped drive tax-exempt yields to the lowest this year. Scheduled debt sales total about $2.8 billion this week, the slowest August week since 2003, according to data compiled by Bloomberg.
For the municipal market, “the key is supply and demand,” more than ratings downgrades, said Ed Reinoso, chief executive officer of Castleton Partners in New York, which manages about $250 million for individuals.
‘Almost Cosmetic’
The S&P action itself “was almost cosmetic,” he said in a telephone interview. “It doesn’t seem to have much impact.”
Yields on top-rated 10-year tax-exempt debt were little changed at about 2.41 percent, close to the lowest since October, according to BVAL data. Two-year Treasury yields touched a record low.
The potential for downgrades to raise municipal borrowing costs comes as some states are already preparing for midyear budget cuts in the face of a weakening economy. Ohio Governor John Kasich, a Republican, told his budget director to monitor revenue collections so any emerging deficit can be averted, he said last week. Maine is also contemplating slashing its budget, the Bangor Daily News reported.
The U.S. downgrade “reinforces the economic pessimism that we’ve had the last couple of weeks,” Fabian said. “It may be more difficult generally for issuers to come to market over the next couple of weeks.”
Political Process
S&P, in lowering the U.S. from AAA on Aug. 5, cited the nation’s political process and said lawmakers failed to reduce spending enough in their deal to raise the debt ceiling. Moody’s Investors Service and Fitch Ratings affirmed their top ratings on Aug. 2, the day President Barack Obama signed the bill raising the debt ceiling and avoiding a default.
Anticipated state and local government downgrades from S&P may be similar to potential ratings cuts Moody’s mapped out last month, DeGroot said in his report. Moody’s on July 13 said a possible U.S. downgrade would affect 7,000 municipal credits totaling $130 billion that are directly linked to U.S. credit.
Moody’s also said it would review indirectly linked credits and last month put five of the 15 states it grades Aaa on review for a potential downgrade because of their vulnerability to cuts in federal spending. The company wound up reaffirming those top ratings last week, assigning a negative outlook.
The aftermath of the U.S. downgrade and possible municipal rating cuts may influence municipal mutual fund flows, according to DeGroot.
Investors withdrew about $861 million from U.S. municipal- bond mutual funds in the week through Aug. 3, according to Lipper US Fund Flows. It was the second straight week of outflows and the biggest since April.
“Broader credit market uncertainty may prolong muni outflows in the near term,” DeGroot wrote in the report.
To contact the reporter on this story: Michelle Kaske in New York at mkaske@bloomberg.net
To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net
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