Muni bonds a bright spot for some investors

CoinIn mid-January, we reported that Wichita locked in some low interest rates on about $112 million in bonds, which means less taxpayer cash is paying interest. That came despite the nasty trends in the stock market.

It looks like the trend is holding, according to an article in The New York Times. Here’s a slice of the story:

Investors should stick with high-quality munis, including bonds issued by state governments, well-run cities and agencies that provide essential services like water, power and mass transit, said Aaron Gurwitz, the chief investment officer of Barclays Wealth Americas. And they should avoid muni bonds issued by the kind of smaller entities with low credit ratings — or in some cases, no credit ratings — that dominate most high-yield municipal bond funds, he said.

Wichita lets bonds twice a year. Last fall, finance officials were fretting that poor rates could mean killing off some city projects. But they said no one could be sure until the bond sale in January. When the date came, they ended up with more favorable rates than in past years. For more, read The Eagle’s story about the bond sale…

WICHITA GETS BETTER RATES ON CITY BONDS

Wednesday, January 14, 2009 Section: MAIN NEWS Edition: main Page: 3A BY BRENT D. WISTROM, The Wichita Eagle

Good timing and good credit combined to net Wichita better-than-expected interest rates on about $112 million in municipal bonds and notes.

That means less taxpayer money will be used to pay interest.

Going into Tuesday’s bond sale – a twice-yearly practice – finance director Kelly Carpenter worried that the city might not receive any bids, which could have delayed projects throughout the city.

But she returned from the 10:30 a.m. sale with a smile and reported to the City Council that the city beat the interest rates it got in July, despite the volatile market and economic downturn.

“I’m really pleased,” she told the council.

The sale keeps on track a wide variety of city projects, such as paving projects, that are financed with bonds.

Municipal bond markets nearly froze last October. City officials expressed concern then in interviews with The Eagle but said they wouldn’t know until January whether Wichita would face financing problems that have stalled major projects in other cities.

“If we would have had to enter the market back in October or September, it would have been a bad scenario for us,” Carpenter said.

But the municipal bond market improved recently, and many investors are turning to government-held bonds as a safe investment.

“Part of it is luck,” Carpenter said.

The rest of it, she said, can be credited to the city’s AA+ bond rating and its reputation for financial stability for generating several bids on each series of bonds.

That each bond issue got several bids shows good competition among investor s, said Bart Hildreth, a Kansas Regents distinguished professor of public finance at Wichita State University.

“On the surface, those are very reasonable rates,” he said.

For example, $33.3 million in 20-year general obligation bonds got a low bid of 2.87 percent from BMO Capital Markets compared with 3.71 percent from George K. Baum & Co. in January 2006.

Tuesday’s bond sale had seven bids.

“You’ve got competition, and that drives the price down,” Hildreth said.