$331 Billion Auction Rate Market Set to Shrink by $51 Billion
Routine failures on almost three-quarters of all auctions in the auction rate securities market tied together with the high default (auction failure) interest rates that municipal issuers of auction rate securities face have resulted in a rush to abandon the auction rate markets by both investors and many issuers.
The auction-rate market began the year at $331 billion. On April 11, Bloomberg correspondent, Jeremy R. Cooke reported that the auction-rate securities market is “shrinking by at least 15 percent, or $51 billion.” This shrinkage is attributable to U.S. municipal borrowers refinancing auction rate securities to escape higher interest rates and to a few closed-end mutual funds agreeing to redeem their outstanding auction rate securities.
Data compiled by Bloomberg reveals that states, cities, hospitals and colleges from Denver to Washington, D.C., have converted or plan to replace at least $43.1 billion of auction rate debt. Meanwhile, Chicago based Nuveen Investments Inc. and seven other fund managers commit to redeeming $7.8 billion in taxable preferred shares, which have rates set through periodic dealer-run auctions.
According to the latest data from the Securities Industry and Financial Markets Association, on April 2, an index of rates on debt with auctions held every seven days fell 1.05 percentage points to 5.67 percent. Although the rate has fallen from a record 6.89 percent two months ago, the rates on debt remains 2 percentage points more than last year's average.
Page Perry, LLC is an Atlanta-based law firm with over 125 years collective experience representing investors in securities-related litigation and arbitration. While past results are not indicative of future success, Page Perry’s attorneys have recovered over $1,000,000 for clients on more than 30 occasions. Page Perry’s attorneys are actively involved in counseling institutional and individual investors regarding their auction-rate securities investment problems. For further information, please contact us.
