A little of this, a little of that

July 15, 2011

Minnesota reaches a deal

Minnesota agrees on a budget, ending a two week shutdown. But is it just accounting tricks? From the NewsObserver.com (emphasis mine):

Minnesota Gov. Mark Dayton and top Republicans agreed Thursday to end a budget impasse that prompted the longest state government shutdown in recent history.

Dayton said the state government would be back in business “very soon,” but he didn’t say exactly when.

The deal to erase a $5 billion deficit came after a big sacrifice from Dayton, who made new income taxes a central campaign message last year and the centerpiece of his budget. He dropped that and said he would accept – with conditions – an offer the GOP put forward on the eve of the shutdown to bring about $1.4 billion into the budget by delaying payments to schools and selling tobacco payment bonds.

Life after QE2

Some market insiders see a downgrade of the USA’s AAA rating as unlikely. Here’s what Daniel Berger, senior analyst at Thomson Reuters Municipal Market Data wrote in a client note:

Few investors seem have a very clear feeling on the direction of interest rates. The Fed’s QE2 program has expired but recent weak economic numbers may necessitate keeping low rates to help the economy strengthen. This, in turn, should lead to stability in the fixed income markets.

In addition, despite talks of a potential US downgrade we are sure that a compromise will be reached as Congress will approve a US budget package and will avoid a default. US Treasuries will retain investor preference as a “safe haven” investment amid troubles in Italy, Greece and Portugal.

A little love for muniland

Reuters reports:

U.S. municipal bond funds posted $367 million of net inflows in the week ended July 13, after outflows of $272 million in the previous week, according to Lipper data issued on Thursday.

Giddy up, Texas?

Seems like conservative states love taking on debt, too, as the Dallas Business Journal reports (emphasis mine):

Texas politicians have been making a lot of hay out of the growing deficits in Washington, D.C.

But, according to figures from the Texas Bond Review Board reported by the Fort Worth Star-Telegram they may be throwing stones from inside a glass house.

The Bond Review Board shows that Texas’ accumulated debt from 2001 to 2010 rose from $13.4 billion to $37.8 billion, an increase of 281 percent.

By comparison, the federal debt rose by just 234 percent during the same period, which included two wars, two big tax cuts, bank bailouts and the stimulus package.

Twitter talk

@IpreoMuni: “Modest jump from “new normal” levels of muni new issuance.

@credstrategist: Looks like Meredith Whitney is only off by, like 100%, on her prediction for muni defaults!

@EpicureanDeal: No, no, no. You all misheard Meredith Whitney. She predicted 100s of billions of *words* would be written about her dumbass call.

@munilass: New prerequisite for writing about Moody’s report and muni credit risk – understand refundings, call options, housing credit enhancement.

@alebenthal: Munis do what they need to do. Fed govt shld follow their example!

Follow me @cate_long and muni issues at #muniland.

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I take that back — one comment: do you see a connection with the story above about the massive increase in Texas’s debt and the fact that they have no corporate income taxes?

Good links

The Curious Capitalist: Will the Debt Ceiling Standoff lead to a Muni Bond Crash?

Bloomberg: Muni Default Plunge Belies Whitney as Borrowers Shun Insolvency

FT Alphaville: The municipal middle man misses out again

Bond Buyer: Baum, CDR in Bid Rig Deal

Third Age: JPMorgan Chase Sub Company Settles Bid Rigging Case

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