In the past, Blue Rose has written about the use of Guaranteed Investment Contracts (“GICs”) and compared them with Flexible Repurchase Agreements (“Repo”)
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
Since Blue Rose’s last update on the transition from LIBOR to SOFR the ARRC continues to push forward in meeting milestones laid out in its paced transition plan
Many higher education institutions and other borrowers in the municipal market are enticed by the low interest rates that are being reported in the press
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
As a result of the economic slowdown caused by the COVID-19 pandemic, many budgets are strained and borrowers continue to look for ways to conserve cash as a way to increase their liquidity
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
