Agenda - Council - 03/11/1980 - Laserfiche WebLink

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SPRINGSTED i INCORPORATED PUBLIC FINANCE ADVISORS SPRINGSTED INCORPORATFI-) BOND MARKET BULLETIN For the past five weeks the bond market has been assaulted.by every economic ill: both real and imaginary, in this Country. The result is a condition never experienced in our memory, in which no Minnesota bond regardless of rating or term, can be sold within the primary rate limitation of 7%. The market has been impacted by inflation, federal efforts to curb borrowing, concern for international security, energy shortages and lastly by panic. That impact has resulted in: An increase in the Bond Buyer's Index (BBi) from 7.28% on January 17th to 8.46% on February 21. The BBI represents an average required reoffering yield on a 20- year term bond with a general rating of "A" or above. An increase on Friday, February 15 of I% in the Federal Reserve Board's discount rate, raising it to 13%. That follows a previously highest single increase of 1% which raised the rate from !1 to 12% on October ~;, 1979. Almost hourly increases in the prime lending rate by major banks. The prime rate as of 10:00 A.M. February 25 at most major banks was between 16W and The loss of billions of dollars in bond values, since as interest rates go up, the values of outstanding lower interest rate bonds drop. The last several weeks has produced the second major loss by bond holders since October 6, and many regular purchasers have decided to "sit the next one out." ~ We foresee no major improvement in sight over the near term. While conditions have changed for the worst so rapidly, any recovery is apt to be slower, and complete recovery during 1980 is not foreseen in our crystal ball. The purpose of all this gloom is to suggest that higher interest rates are probably here to stay for the balance of the year. If you have projects pending which will result in imminent contract awards for which bond proceeds will be required, we suggest you call us and discuss the project before awarding contracts. Our discussions at least can take place with up-to-dote information and may serve to prevent a temporary funding crisis for you. The Minnesota Legislature is considering several proposals to increase the maximum permitted rate on general obligation bonds. One proposal would increase the maximum to 8%; another would eliminate any maximum. Until one of these proposals is enacted into law, it is our opinion that no Minnesota general obligation bonds will be marketable without dramatic improvement in market conditions. We suggest you call your area legislative delegation and inform them of any problems you have with unmarketable bond requirements. The longer the legislature delays in acting on a relief measure, the greater will become the backlog of unsold bonds. Two weeks ago we would have considered an increase to 8% as acceptable. Today, we do not feel it will be adequate for all issuers and suggest that the increase be higher, or the limitation be removed entirely. SF 1911 would remove any limitation on competitive offerings and place a 10% limit on non-competitive issues. 800 Osborn Building, Saint Paul, Minnesota 55102 (612) 222-4241