Bond Age
Thanks to Denver’s Channel 8 and the City Council Bond Implementation Committee for bringing us up to date (as of 9-22-08) regarding the current state of the Better Denver Bonds, which, as you may know, I’ve been trying to follow closely. My emails to Better Denver via their website and to Councilman Doug Linkhart have to date, brought no response, and I was beginning to get nervous, what with the “market turmoil” we are currently experiencing. It sounds to me like everything was going pretty smoothly at the time of this meeting. We won’t be issuing any bonds (until late in 2009?) but we have already saved a million dollars by issuing commercial paper (borrowing) at the low rates of 1.5 and 1.85% per annum (not per month as I incorrectly assumed in a previous post). I’m not sure how this is possible with the Fed Funds Rate at 2.00, but hey, let’s just keep rolling this over if we can. And oh, by the way, our financial partner/broker is Wachovia, currently being fought over by Citi Corp and Wells Fargo as it goes under. What if any effect will this have on Denver is unclear. Stay tuned – the next meeting is Oct. 27, and I’ll get it to you as soon as it is available. Tech note: Often when downloading from Channel 8 I get slippage between the picture and sound, so I have to adjust the sync before posting to YouTube. It seems to wax and wane, so what you see is the best fit I can get.
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It is possible mostly because the money market panic is driven by the fear that other banks have bad mortgage debt or bonds of (or private money market insurance from) financial institutions that do.
ReplyDeleteWhen a corporation or municipalities that doesn't participate in the financial markets in the same way issues commercial paper, the threat of default is much lower. They depend upon the real economy (which is something of a lagging indicator compared to the financial markets), and not on the Wall Street economy.
Lower risk implies lower rates.
I have to confess a bit of surprise myself, however, at the very high credit rating given to a recent issue of DIA revenue bonds (against which the full faith and credit of the city's tax collection powers are not pledged), given the fairly weak state of the airline industry, and in particular, of bankrupt Frontier and not exactly wonderfully healthy United Airlines. Perhaps bond raters think that anything unconnected to the financial and housing slump is a comparatively good bet.