Refunding bonds

Deep-in-the-red municipal returns are not helping assuage investor concerns, creating a negative feedback loop that has yet to see a pause.

Assuming the taxable and tax-exempt rates are highly correlated (and in fact they are), we can show that the expected cost of a fairly priced callable bond exceeds that of an optionless bond.

The long bond on the exempt $955 million tranche have traded stronger in the secondary market since pricing.

Total March volume was $39.363 billion in 793 deals versus $47.763 billion in 1,218 issues a year earlier but above the $34.363 billion average.

The Virgin Islands Public Finance Authority and Matching Fund Special Purpose Securitization Corporation plans to price $793.025 million of tax-exempt and $124.960 million of taxables.

An unfortunate custom in municipal finance is to discount every cash flow with the same rate, namely by the yield of the refunding issue. This underestimates the worth of nearby savings, and overestimates that of savings in the distant future.

Gross savings from the transaction is expected to be $378 million, or about $11 million a year, which would result in around $250 million in net present value debt service savings.

January issuance declined by 14.7% year-over-year amid a rising-rate and volatile environment.

2022 volume projections are clouded by many uncertainties. What is not murky is that demand for municipals is unlikely to fade.

Much of the Oregon Health & Science University deal funds a hospital expansion, but it also includes a tender exchange and a privately placed forward refunding.