Rate spike may lead to U.S. muni 'Armageddon' -SEC commissioner

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Investors in the $3.7 trillion U.S. municipal bond market could soon face an "Armageddon" if interest rates spike, a member of the Securities and Exchange Commission said on Tuesday.

Commissioner Dan Gallagher told a roundtable of market participants hosted by the SEC that recent bankruptcies in California pose the threat of losses to bondholders.
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http://www.reuters.com/article/2013...0416?feedType=RSS&feedName=marketsNews&rpc=43

So, ah... yeah. About that "exit strategy" for QE...

 

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* one decade necro bump *

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The muni market finances the "fabric of our nation, and now, because of Citi's exit, the cost of financing for state and local governments is going to go up," the source added.

While noting industry-wide pressures, Friedlander said it was "sad" that after senior talent left the firm "Citi decided just to move away from the municipal market function entirely."

Citi decided that "rather than generating the kind of talent necessary to manage a very senior municipal market function, they were just going to say, 'never mind,'" Friedlander said. "But in saying 'never mind,' they left the market with some holes … in terms of liquidity, the management of a number of functions in the market and various subcategories like hospitals, airports, power [and] housing."

One prominent issuer called the move "terrible" for local governments.
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Citi's exit carries costs for issuers, market liquidity, but industry expected to weather it

The muni market finances the "fabric of our nation, and now, because of Citi's exit, the cost of financing for state and local governments is going to go up," a sell-side source said.

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