The crisis in the auction rate securities market continued this week. While some issuers are preparing to refinance auction rate securities that have the highest interest rates, the suddenly turbulent market for muni bonds may leave many investors stuck in their illiquid positions.
“About 61 percent of auctions failed to attract enough bidders yesterday, in line with the average since mid-February, according Bloomberg.
The recent rally in the muni market, however, may make it easier for ARS issuers to refinance the products. Many auction rate securities are issued by government agencies. In order to repurchase the securities from investors, these agencies would likely have to issue plain-vanilla municipal bonds.
Accrued Interest has a good discussion of the breathtaking rally.
“On Monday, retail buyers (i.e., mom and pop investors) started coming out of the woodwork to buy bonds,” he writes. “The State of California came with a $1.7 billion deal on Monday. Demand was so strong that the underwriter cut the interest rate by 15bps across the board, and still $1 billion of the deal was done retail. Now maybe there has been $1 billion of a deal done retail in the past, but I sure as hell don’t remember ever hearing of such a thing. Smith Barney, Citigroup’s retail brokerage arm, supposedly had the best day for selling municipal bonds in their entire history on Monday. One large dealer I talk to regularly said they had sold every bond in their inventory by 11AM.”
Munis Rally as Highest Yields Since 2004 Lure Buyers [Bloomberg]
Municipal Bonds: Yeeeeaaaaahooooooo! [Accrued Interest]
Comments (2)
Leave a comment
You can log in with your account or comment as a guest below.
Bullshit – how is this a rally – look at the spreads to treasuries!
Any investors who own Auction Rate Preferred Securities, read this excerpt, and contact him…he is trying to get all ARPS holders together so that we can combine our information and put up a fight!!
I repeat: If you own failed auction rate preferred securities (ARPS), please send me an email. We need to talk. There are serious benefits in combining our thinking. harry@harrynewton.com . I am not a law firm. I am not a financial advisory firm. I am not seeking fees, I am stuck in these things, just like you. I am seeking collective wisdom.
In the meantime, if you own auction-rate securities sold by closed-end funds, you had better be prepared to hold.
+ An owner of $60 million+ of ARPs emails me that his “strategy” is:
1. VERY FIRMLY, call your brokers and notify them that you NEVER authorized them to purchase Auction Rate Preferred Shares
2. You want 100% of your principal returned immediately.
3. In the event they don’t agree, notify them you will legally hold them accountable for all principal, interest, and damages.
4. A loan makes no sense, since we are acknowledging collateral on an asset we NEVER authorized them to purchase.
This is a formal complaint to the broker, which we have made, and we are awaiting a response which could take 2-3 weeks. After that, we band together and attack.
the website where I found all of the above info is:
http://www.auctionratepreferreds.org/index.php