Incertitudes sur les bonds municipaux

La semaine passée, les gens ont vendu plus de 2.8 milliards de leurs bonds municipaux.

Devant l’incertitude que les villes peuvent faire défaut de paiement, ils ont vendu leurs coupons de leurs bonds municipaux.

Le comté d'Orange, en Californie, a remis à plus tard la vente de 160 millions de dollars de Build America Bonds (cf. ci-dessous). "Le marché obligataire a été très volatil et submergé par de nouvelles émissions", observe Mike White, contrôleur du comté. Le système de l'hôpital public de Cleveland a reporté la vente de 100 millions de dollars d'obligations prévues pour refinancer une créance en cours au taux d'intérêt plus élevé.

"Les taux ont tellement augmenté que notre refinancement n'avait plus de sens", explique Mark Moran, président de MetroHealth System à Cleveland. Hé ! S'il pense que les taux sont élevés maintenant et que cela "n'a plus de sens" d'entrer sur les marchés obligataires, il faut qu'il s'attende à avoir un rude choc !

La Grande récession avait largement mis à mal les revenus des états et des municipalités dans tous les Etats-Unis. Voulant à tous prix joindre les deux bouts tout en maintenant les niveaux existants de services, ils ont fait ce qui était logique : ils ont appelé à l'aide le gouvernement fédéral.

Le jour où il faut régler les comptes n'est jamais amusant. Cela le sera d'autant moins pour les épargnants et les retraités qui ont acheté des muni-bonds parce qu'on les avait jugés comme étant une source sûre de revenus de retraite éternellement exonérés d'impôts.

L'iceberg qui se devine sous la surface : une foule de plans de retraite privés et publics dépendent eux aussi des muni-bonds.

Extrait de: US muni bonds see biggest drop since 2008, Nicole Bullock in New York, Financial Times, November 16 2010

The $2,800bn “muni” bond market where states and municipalities raise money has been under pressure over the past week amid a rise in the yields of benchmark US Treasury bonds, heavy bond sales and uncertainty about federal support for the market.

The market declines have made investors, who are mostly wealthy individuals benefiting from tax breaks on muni debt, nervous about an uptick in defaults. Munis historically have been a relatively safe place to invest, but budget deficits and underfunded public pensions have created widespread concern that local entities could struggle to pay their debts.

“There is a complete distrust of municipal credit among retail investors and the public at large,” said Matt Fabian, managing director of Municipal Market Advisors, a research group.


Municipal debt

Extrait de: Two Dates to Remember for the Municipal Bond Market, Addison Wiggin, 11/17/10

In fact, Monday was the worst day for municipal bonds since the Panic of ’08, the yield on 10-year AAA debt blowing out from 2.75% to 2.93%.

That prompted several issuers to hold off on new financing plans. For instance…

  • Orange County, Calif., postponed the sale of $160 million in Build America Bonds (about which more below). “The bond market has been pretty volatile and flooded with new issues,” says county controller Mike White
  • Cleveland’s public hospital system postponed the sale of $100 million in bonds intended to refinance existing higher-interest debt.

    “Yields rose in such a way that our refunding didn’t make sense anymore,” says president Mark Moran of MetroHealth System in Cleveland. Heh, if he thinks yields are high now, and it doesn’t “make sense” to enter the credit markets, he’s in for a rude shock.

    The Great Recession cratered revenue for states and municipalities all across the nation. Desperate to make ends meet while still maintaining existing levels of services, they did the logical thing: They cried to Washington, DC.

    Lecture complémentaire


    Cahier spéciale : une ville peut-elle faire faillite ?

    Une ville peut –elle faire faillite?

    Si vous voulez approfondir le sujet: 

    Extrait de: Muni-Bond Market Tumbles As Investors Demand Higher Yields on Shaky Finances, By Don Miller, Associate Editor, Money Morning, November 19, 2010

    California's efforts to sell $10 billion in short-term bonds last week attracted only tepid interest, adding to concerns that some local governments are on shaky financial ground and may have to pay more to attract investors.

    The widely watched sale drew interest from around the country as debate continued over whether the stability of municipal finances has been a factor in market prices. The tax-exempt bond market has been overwhelmed by a deluge of supply that has decreased demand, depressed prices and forced yields higher.

    The tax-exempt municipal bond market is a cold, cold world right now for issuers and taxpayers," Tom Dresslar, a spokesman for the California State Treasurer told The Wall Street Journal. He added that the state decided to cancel another $267.3 million bond sale it planned to price this week "in light of market conditions."

    Poor reception by investors led America's beleaguered states and cities to pull about $700 million worth of borrowing deals from the municipal bond market last week, even as yields on the tax-exempt vehicles handily exceeded Treasuries.

    That represented roughly 3% of the week's planned sales, according to data The Journal obtained from Ipreo. Many of the bond sales were aimed at refinancing outstanding debt at lower rates, meaning the governments didn't immediately need the money.

    The muni-bond market, normally a picture of stability, is suffering through its steepest decline in nearly two years, as investors demand higher interest rates for bonds issued by states, cities and counties to finance their operations.

    After pouring billions into municipal bond funds most of the year, investors pulled $115 million out of the funds last week, the
    Investment Company Institute (ICI) said. That was the first weekly outflow in seven months, ICI told The Journal.

    Local governments have been slammed by a drop in tax revenues and budget shortfalls as the economic downturn spawns rampant unemployment and dampens consumer spending. Unlike the federal government, most local governments are barred constitutionally from running deficits.

    Municipal bonds, issued to fund public projects such as roads and public buildings, have historically been seen as one of the safest places to invest,
    which is why 80% of municipal bond holders are individual households and mutual fund investors, Jeffrey Cleveland, municipal bond analyst at Payden & Rygel Investment Management told Forbes.

    National League of Cities says municipal governments will probably come up short on $56 billion to $83 billion of bond obligations between now and 2012. But that could increase, Matt Fabian, managing director at Municipal Market Advisors told Forbes.

    Several downtrodden cities have been on the verge of defaulting on their debt, leaving states and taxpayers legally on the hook to pick up the tab.

    Pennsylvania's capital city of Harrisburg narrowly escaped default in September when it made a $3.3 million payment on a 1997 general-obligation bond for a trash incinerator.  The city paid up after it was sued by its home county, Dauphin, and Bermuda-based bond insurer
    Assured Guaranty Municipal Corp
    .  The state of Pennsylvania provided funding for the bailout.

    Moody's Investors Service added to the uncertainty surrounding municipal finances last week when it downgraded its debt ratings on the city and county of San Francisco, as well as the city of Philadelphia.

    Moody's cited "continued weakness of the city's finances" in its downgrade of Philadelphia, affecting $3.85 billion in outstanding debt, according to The Journal.  San Francisco “ended fiscal 2009 with a balance sheet that was weaker than at any time in the prior ten years," the ratings agency said.

    Representatives from major rating firms and municipal-bond participants told state insurance regulators at a hearing in New York last week that the danger of states and cities defaulting on their debt remains small. But some urged regulators to increase credit analysis for muni-bond-backed enterprise projects.

    Regulators expressed concern that municipalities are understating their liabilities by assuming inflated rates of return on their investment portfolios.

    The ratings agencies testified that they thought states and cities would do whatever necessary to meet their obligations, including raising taxes, or cutting benefits for current or new workers to meet under-funded pension plans.

    Bond-backed funding for enterprise projects, such as steam plants, housing projects, or even private companies that access the public debt markets deserve closer scrutiny, the agencies and investors testified.

    State regulators "might take a long hard look at that which passes for municipal debt," Bill Brandt, president of the Illinois Finance Authority told The Journal. "It's not your grandfather's municipal bond anymore," he said referring to so-called private-activity bonds.