Bogacz says municipal rates have been low in recent months because of the drain of tax-exempt bonds created by Build America Bonds, a temporary financing option created by Congress to aid government borrowers after the credit crisis.
Build America Bonds are taxable (but come with a federal interest subsidy) and siphoned away bond supply for tax-exempt investors, which lowered rates for remaining borrowers.
(The total amount of tax-exempt bonds brought to market in 2010 is projected to be on par with the tally in 2002 because of the Build America Bonds, the Securities Industry and Financial Markets Association said in its summary of market activity through the end of September.)
The Build America Bond program also expires in about six weeks.
That fast-approaching deadline contributed to a rush to market by tax-exempt borrowers last week, with $14 billion scheduled for issue, “the heaviest week of the year by a substantial margin,” Citigroup analysts said in a comment on the sector.
Bogacz also says he believes last week's 70 basis point increase "to be somewhat of an overcorrection" as the benchmark 30-year Municipal Market Data index retreated somewhat late last week from its high point on Wednesday.
John Cheney, a managing director for Ponder & Co., a healthcare financial adviser, says hospital clients have responded to the uptick in rates by holding back bonds to refinance older debt that had been scheduled to go to market.
In Milwaukee, Aurora Health Care opted to refinance $153 million last week, rather than $380 million as planned, spokeswoman Myrle Croasdale says.
The system, which owns a dozen Wisconsin hospitals, had hoped to lower its costs by refinancing one-fifth of its debt.
The $153 million in bonds Aurora did price must be paid back in less than 10 years with an all-in rate of 4.48%, Croasdale says.