The bond market has shown some signs of a thaw, but the credit freeze may not be over.
A few local governments in Tennessee have been successful selling long-term bonds recently at manageable interest rates, after a near total collapse of the municipal bond market earlier this year.
White House, a Sumner County town of fewer than 10,000 people, refinanced $6 million worth of general obligation and sewer bonds this week at less than 4.5 percent annual interest.
Not bad considering the average annual interest for municipal bonds has increased to 6.56 percent from 4.62 percent a year ago, according to industry publication The Bond Buyer.
The state of Tennessee managed to get a $167 million bond issue sold Nov. 17 to fund college building projects, at a rate of just 4.86 percent over 30 years. The bonds will fund mostly completed projects such as Middle Tennessee State University's $20 million wellness center; new research facilities at Tennessee State University; and the renovation of Monohan and Lyon dormitories at MTSU.
"It was a very successful sale,'' said Mary Margaret Collier, director of Tennessee's division of bond finance. "The Monday we sold the bonds, the market was fairly stable. We had great retail success. We had institutional investors who came in and bought the longer (term) securities."
Some bonds go unsoldCollier hadn't been so sure in October, when several local governments put off bond sales amid market turmoil and as few institutional investors were willing to invest, which is critical for big bond sales. Williamson County put off a bond sale until this spring and told the local school system to pare its wish list of projects, meaning one new elementary school will get built by 2010 and a new high school by 2011. But a new elementary school for Spring Hill has been delayed.
The turmoil is far from over.
"We've begun to see that slow thaw," said Rick Dulaney, managing director at investment bank Morgan Keegan & Co. in Nashville. "We really have not seen as many institutional investors come back to the market as we had hoped. We think that will continue to develop as we go forward."
Some bonds are still not finding buyers. On Wednesday, there were no bidders for the Port Authority of New York and New Jersey's $300 million bond sale. The city of Baltimore pulled a $164 million bond sale off the market this week amid high interest rates, according to Marlin Mosby, a managing director in Nashville for Public Financial Management, which advised on the bond sale.
"Deals are getting done where a month ago they were not getting done," he said.
But for larger bond sales, the interest rates investors demand sometimes aren't good and bond sales are getting delayed, Mosby said.
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