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Muni Bond Issuers Postpone Sales

Securities: State and local governments cite the recent rise in long-term interest rates.

February 27, 1996|From Reuters

NEW YORK — A number of state and local governments have postponed the sale of at least $1.3 billion of municipal bonds because of the recent rise in long-term interest rates, officials and underwriters said Monday.

Issuers of municipal bonds had scheduled more than $4 billion of new securities to be sold this week, including several rate-sensitive deals that were to be used to pay off maturing older bonds.

The municipalities were looking to save money by borrowing at lower rates and using proceeds of the new loans to pay off old, more expensive debt.

But long-term interest rates refused to cooperate.

The yields on the key 30-year Treasury bond rose to 6.46% from 6.41% on Friday, bringing the rise in long-term rates to nearly half a percentage point in the last two weeks.

State and local governments hoping to save money by refinancing have decided to hold off, at least for now, on at least $1.3 billion in new bond sales, officials said.

"We were ready to go and then rates started to climb precipitously," said Kenneth Olshansky, Massachusetts deputy treasurer.

Although yields on municipal bonds have not risen quite as much as Treasury yields, the increase has been enough to mean most of the biggest deals no longer make economic sense.

Massachusetts was hoping to sell $560 million of bonds last week, but the rise in rates forced a postponement.

Olshansky said the deal is now sitting on a tentative "day-to-day" calendar until market conditions improve.

Long-term interest rates will have to drop about a quarter of a point for the Massachusetts sale to be worthwhile again, said Andrew Gurley, a managing director at PaineWebber Inc., which is underwriting the deal.

"We're still on hold until the market turns, or if the market turns," Gurley said. "It's going to be a while, I'm sure."

Another deal put on hold is the Los Angeles County Public Works Financing Authority's sale of $482 million of bonds, underwritten by Smith Barney Inc.

Market analysts cited several factors for the recent rise in long-term rates, including the presidential campaign.

Republican candidates fighting for the party's nomination have spoken little in recent weeks of balancing the budget, making bond investors nervous.

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