Here is a good interview with our favorite radio host, Brain Lehrer from WNYC and Andrew Ross Sorkin, columnist and financial reporter for The New York Times as they discuss the Financial Crisis Inquiry Commission’s focus on ratings agencies in today’s hearings, featuring Warren Buffet.
Muni Bond Talk
Posts Tagged ‘credit ratings’
Andrew Ross Sorkin, from NY Times Discusses Ratings Meltdown on Brian Lehrer show (WNYC)
Friday, June 4th, 2010Tags: credit ratings, Moodys, municipal bond defaults
Posted in Bond Ratings, Ratings | 1 Comment »
Muni Default Risk To Get Worse Before It Gets Better
Sunday, February 21st, 2010Take a look at this WSJ video with Bob DiMella, manager of the Mainstay Tax Free Fund. In summary he says:
1) Muni Bond Demand Increasing – Demand for muni bonds is not going away any time soon because of coming higher taxes and taxable Build America Bonds (BABs) reducing the amount of new tax free bonds being issued. BABs are also finding their way into individuals 401k plans.
2) Muni Default Risk – The problem and solution are political meaning that problems have to be perceived as being so bad that politicians have the necessary cover to make difficult changes to balance the budget, such as reducing platinum pension and health plan benefits. Sounds like a GM bankruptcy coming to a town near you.
We believe Bob DiMella’s comments are largely on track. That said, there are clearly fundamental credit problems in poorly run municipalities (i See Bondview BLOG on this ) on Harrisburg, PA.
Plus there are larger recessionary forces at play that can break the camels back. The worst recession since the 1930s has caused the steepest decline in state tax receipts on record. As a result, even after making very deep cuts, states continue to face large budget gap according to the Center on Budget and Policy Priorities Jan 2010 report “Recession Continues to Batter State Budgets; State Responses Could Slow Recovery “
Tags: Center on Budget and Policy Priorities, credit ratings, debt, mainstay, muni rates, wall street journal
Posted in Center on Budget and Policy Priorities, Harrisburg Authority, muni rates, municipal bond defaults | No Comments »
AMBAC Lives Another Day
Saturday, November 21st, 2009It seems for now that AMBAC may win its fight to survive, unless a few muni defaults of AMBAC insured bonds bankrupts them. The insurer can at least rely on the long term premiums continued to be paid by all the municipalities it did insure thereby assuring them an annual maintenance stream. All that said, the insurance industry thrives on conservative stability. So why the AMBAC roller-coaster? Well muni rates are low, but their 3rd quarter results showed a capital gain and a higher stock price moved ( over 30% to $1.30). Then last week AMBAC announced the possibility of a bankruptcy filing. And a few days later it reported $856M of surplus easing concerns the bond insurer would fall short of statutory minimums. How all this can happen in two weeks seems anything but predictable. Some Wall Street analysts had speculated the insurer would come up short of $2 million in minimum capital needed under rules set up by its regulator. Then Ambac said it will receive a gain and plus the US government is bailing them out (and alot of other companies) with a $440 million tax refund because of recent legislation that will allow it to carry back 2008 and 2009 losses as far back as 2004.
Here is a list of recently traded insured bonds from BondView.com
Tags: AAA Muni bonds, credit ratings, muni rates, municipal bonds
Posted in Bond Insurance, muni rates | No Comments »
AMBAC Bites The Dust…?
Wednesday, November 11th, 2009About 10 years ago my muni bond broker said the “day insurers of muni bonds cant pay off a defaulted bond you will have bigger problems on your hands” , implying such an event would never happen. Well he was right about big problems. Bond insurers sent shudders through the $2.8 trillion municipal bond market when the threat to their internal triple-A credit ratings surfaced two years ago. But now that one of the biggest, Ambac, has said it may actually tip into bankruptcy, the market barely cares. With muni rates at all time lows, and bond pricing all over the place, bond insurance is a laughable notion. Up until a few years ago any old municipality could buy a AAA bond rating bond insruance helped foster an environment where the AAA muni was a commodity that was easily traded. Many investors didnt care about the all important underlying rating of a muni and instead bought by issuing insured bonds. The underlying rating was meaningless since buyers thought they just wanted a commodity: The AAA Bond. We know now that was a mistake, hopefully never to be repeated.
In the heyday of bond insurance, seven firms carried the top credit rating of triple-A, and half of new municipal bonds carried insurance. Now, barely 10% of new muni bonds have insurance. None have retained triple-A ratings and all but one, Assured, have junk ratings! Their downfall came after the top insurers branched out to guarantee complex mortgage securities. When the housing market tanked, insurers saw their losses grow, their ratings fall and their clients flee.
What does this mean for today? The muni bond market has largely taken its losses and has withstood the turmoil seen with the weakest of the insurers. Besides Ambac, MBIA posted its fifth straight quarterly loss earlier this year and its public finance insurance spinoff is being challenged by banks, which say such a split is fraudulent. Here is a list of today’s insured bonds trading info from BondView
Tags: Bond Insurance, bond pricing, credit ratings, Moodys, Muni bond Defualts, municipal bonds
Posted in Bond Insurance, bond pricing, muni rates | 1 Comment »
Legacy Credit Ratings Don’t Jive With Market Reality
Sunday, October 11th, 2009In mid August, the bond section of the Charles Schwab brokerage Web site said a representative ten-year, single-A muni yielded 5.9%, and a ten-year, triple-A yielded 4.1%. But when you look at the actual listings, you’ll often find anomalies: Some ten-year single-A bonds yielded as little as 3.7%, while a few uninsured triple-A bonds (those supported by tax revenues or utility bills) paid up to 4.5%. Clearly, legacy credit ratings don’t jive with market price realities but market price based credit ratings do. For example, look at the bonds of then highly rated Lehman Brothers and Bear Stearns months before they imploded and the market had it right. Bond-fund managers say they rely more on their own research to evaluate a bond’s price and yield, you should too and you can trade smarter by taking advantage of pricing inconsistencies.
Tags: credit ratings, individual investors, market price based credit ratings
Posted in Ratings | No Comments »
Moodys Should Disclose When A Ratings Or Rerating Was Given
Sunday, October 11th, 2009Would you want to own muni bond that hasn’t been given a sniff test for 20 years? Well this is a common concern for muni investors according to the N.Y. Times “When Bond Ratings Get Stale” (10/11/09). We were not surprised by Moody’s alleged failure to monitor older ratings on many thousands of municipal bonds held by individual and institutional investors. Former Moodys’ senior employee Scott McCleskey, head of compliance at Moody’s from April 2006 to September 2008, outlined his employer’s failures to the US Congress this week and claimed that once Moody’s issues these ratings, it rarely reviews them again — leaving them fallow, sometimes for decades, a concern echoed by other former Moody’s employees. One way to resolve this glaring problem is for agencies to disclose exactly when a ratings or rerating was given.
Tags: bondview.com, credit ratings, individual investors, market price based credit ratings, Moodys, municipal bonds, New York Times, Scott McCleskey
Posted in Market Commentary, Ratings | No Comments »
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Critics Complain of Bond Raters’ Conflicts at US Congress Hearings
Sunday, October 11th, 2009Reading thru Jeffrey R. Kosnett column from Kiplinger ”Beyond bond ratings”, (Oct 7, 2009 )
Ten year ago , the major ratings firms ( Standard & Poor’s and Moody’s) offered no warnings about scandals brewing at Enron and WorldCom before the firms collapsed. More recently, raters missed the troubles at Lehman Brothers, AIG, and other financial institutions, not to mention subprime-mortgage securities. Critics complain at congressional hearings and elsewhere, that ratings agencies are “hopelessly compromised” by a business model in which they receive fees from the very bond issuers the public expects them to judge impartially. Can muni bond holders really rely on legacy credit ratings?
Tags: credit ratings, market price based credit ratings, Moodys
Posted in Market Commentary | No Comments »