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No one wants our debt!

Discussion in 'Financial Cents' started by hacon1, Feb 12, 2008.

  1. hacon1

    hacon1 Monkey+++

    Failed Bond Autions Total $6B Tuesday

    Citi Document: Failed Bond Auctions Tuesday Total $6B, Adding to Concerns About Credit Markets
    February 12, 2008: 07:24 PM EST

    NEW YORK (Associated Press) - Failed auctions of mostly municipal debt totaled approximately $6 billion Tuesday, with Citigroup Inc. the lead underwriter on the bulk of the sales, according to a document from the bank.

    Auction-rate securities, a type of bond that investors can re-sell at regularly scheduled auctions, have been knocked by the turmoil in credit markets. The size of the auction-rate muni market is about $250 billion.

    The failed auctions Tuesday follow at least six others, sparking concerns this once-safe corner of the credit markets is the next area to crumble. When an auction fails, the holders of the securities are paid a premium until the paper can be sold.

    Citigroup, under an old moniker Smith, Barney, Harris Upham & Co., led the majority of the deals, but Goldman Sachs Group Inc. also was listed as the underwriter of seven separate auctions.

    The auctions themselves were small in size, with most between $50 million and $100 million each, and from a variety of issuers ranging from a San Diego hospital to the New Jersey Building Authority, according to the Citigroup document.

    "We have seen widening spreads, reduced demand for certain auction-rate securities and failed auctions, including some auctions which Citi acted as broker-dealer," a Citi spokeswoman said in an e-mail. Goldman Sachs declined to comment about the auctions.

    The failed auctions show how vulnerable the municipal bond market has become since bond insurers _ which insure about half of the $2.5 trillion market _ have run into troubles with their business in structured finance. Ambac Financial Group Inc., the country's No. 2 bond insurer, has already lost its triple-A rating from Fitch Ratings, while Financial Guaranty Insurance Co., or FGIC, was cut to double-A by Fitch and Standard & Poor's.

    "It's a crisis of confidence," said Jon Schotz, chief investment officer of Saybrook Capital in Santa Monica, Calif.

    Should Ambac be downgraded by Moody's Investors Service and S&P, that could initiate another wave of failed auctions, he said.

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