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Friday May 25, 2007
Roberts Risk
Add a new category of risk to the checklist municipal issuers need to assess before entering into interest-rate swaps: Roberts Risk.
For the next year, swap counterparties on both sides of municipal transactions will have to try and read the Supreme Court tea leaves to figure out whether the nearly-universal system of state income tax exemptions will be thrown out. The issue is most acute in high-tax, wealthy states like California and New York, where the state tax exemption makes a material impact on a bond's taxable-equivalent yield, and thus allows those states' bonds to trade at a premium. In The Bond Buyer today, Municipal Market Data pegs the market yield for one-year paper in California at 3.58%. The next-lowest yield in the region is 3.65%.
[Read More and Comment]Posted by bondbuyer [Tax Status and Policy] ( May 25, 2007 10:36 AM ) Permalink | Comments[0]