Easy Muni Money Vanishes and Issuers Are Paying Up

U.S. cities and states are paying up to get muni deals off the ground as buyers gain more bargaining power -- a marked departure from the anything-goes market for sellers in the easy-money era.

Issuers including Denver and New Hampshire are finding buyers now have the upper hand as the Federal Reserve’s push to tighten monetary policy raises refinancing costs. A $246 million portion of a bond sale from the city of Denver had a total interest cost of 3.21% versus around 1.75% for a similar offering two years ago.

At the same time, Mississippi State University is pausing plans for a debt refinancing because yields have jumped so much that the transaction doesn’t make financial sense anymore. Meanwhile Texas sold AAA rated bonds for its water loan program last week, offering a whopping 233 basis points versus just 11 basis points for its similar two-year bonds launched back in September 2021.

Another way of thinking about it: The great muni selloff is offering investors saddled with historic losses this year one small win in the form of bargain prices on new deals.