Bond market is perking up
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By Louis Porter Vermont Press Bureau - Published: December 1, 2008
MONTPELIER – The head of the Vermont Municipal Bond Bank said that despite a weakening national and state economy, the outlook is good for the sale of the debt Vermont cities and towns need for everything from plow trucks to building renovations.
Credit markets for such bonds were virtually frozen earlier in the fall. But now individual investors looking for safe havens in a turbulent market appear to be turning to municipal bonds again, said Robert Giroux, executive director of the bond bank.
"The municipal tax exempt market that we issue bonds in has improved dramatically," he said.
By September the market had "just shut down. There was nothing moving at all," Giroux said.
But now more buyers seem interested in municipal bonds again, and the interest rate – the amount it costs towns to borrow – is roughly 5 percent. While that rate has been lower in recent years, it has also been higher, Giroux said. Indeed, a couple of months ago it was nearly 8 percent, he said.
"Historically that is quite good," Giroux said.
That doesn't mean that towns and cities in Vermont have nothing to worry about when it comes time to borrow money. For example, (except for a special issue of debt for one municipality) the bond bank will not issue another major round of bonds until next summer. Conditions may have changed again by then.
"Who knows what is going to happen between now and the summer," Giroux said.
But overall, he is cautiously optimistic, although institutional investors have not in large numbers returned to investing in the tax-free bond market yet, Giroux said.
"Individual investors are looking for safe places to put money," he said.
When most towns in Vermont – except Burlington, which issues its own bonds – want to offer bonds to get money for capital projects, they usually turn to the bond bank, saving some of the cost of issuing those bonds themselves. The bank then offers bonds for sale on the market, turning the money over to the municipalities for their needs.
Usually the bond bank issues between $40 million and $50 million in new debt each year for about 25 to 30 municipalities. He expects next year to be typical at this point, Giroux said.
Tax free municipal general obligation bonds are quite safe because they are backed by the full faith and credit or highest obligation of cities and towns. But when investors are worried about the markets in general, even safer investments like municipal general obligation bonds can attract fewer buyers. Then the interest rate, which is the cost of borrowing, goes up.
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