In the current market, debt service reserve funds create negative arbitrage for issuers due to the difference in available investment rates for the reserve fund and the borrowing rates of the bond transaction
In the current market, the yield curve is no longer inverted and in fact is steeper than it has been during the past four years
Prior to the financial crisis, long-term interest rates were significantly higher than where they are currently. The graph below shows the decline of the 20-year LIBOR swap rate (as a proxy for long-term interest rates) since January 2007
There continues to be a disparity in the current market between pre-refunded municipal bonds and Treasury securities
It is typical for issuers with an upcoming refunding transaction to engage an escrow bidding agent
The Treasury securities held in escrows that were bid in recent years have likely appreciated substantially in value due changes in interest rates, and we are seeing that dealers are willing and often eager to buy back these securities
Many issuers with outstanding variable rate demand bonds (“VRDBs”) have been closely tracking the SIFMA index in recent weeks, due to increased market volatility
tilizing a GIC as opposed to a Repurchase Agreement (“Repo”) for the reinvestment of bond proceeds can result in a higher yield of approximately 25 basis points, depending on the balance invested, the time period for which the balance is invested, and the type of collateral that is eligible under a Repo agreement
A money-market fund offers a short-term variable rate that, in the current inverted yield curve environment, is often higher than the long-term fixed rate offered by a laddered portfolio investment
Generally, in a positively sloped yield curve environment, issuers benefit from investing the bond proceeds in their project funds by purchasing investments with a longer duration that offer a higher yield when compared with money market funds or other short duration instruments
