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States pitch bonds to foreign buyers

Amy Scott Dec 24, 2009
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States pitch bonds to foreign buyers

Amy Scott Dec 24, 2009
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Kai Ryssdal: One of the many things that happened as the economy went south was that state budgets, which had been on a roll, were suddenly hammered by a drop in tax revenues. To make up the difference a lot of those states have had to borrow to get the cash they need. They’ve hit the bond markets. So far this year state and local governments have sold more than $60 billion worth of what are called Build America Bonds. They’re subsidized by the U.S. Treasury. And to drum up interest in their debt, states are taking their marketing message overseas. Marketplace’s Amy Scott reports.


AMY SCOTT: In a few weeks, the state of Illinois will try to sell nearly $3.5 billion in bonds to pay for contributions to its pension funds.

John Sinsheimer is Illinois’ director of capital markets. He says typically, the state would find more than enough buyers in the U.S. But this deal’s so big, it’s pitching directly to European investors too.

JOHN SINSHEIMER: It will be the second-largest bond issue ever done by the state of Illinois. So expanding to offshore investors just gives us more market, and potentially more buyers to buy the bonds.

The more demand for the bonds, the less interest the state will have to pay. Overseas investors have already shown a taste for state and local debt.

Matt Fabian is with Municipal Market Advisors. He estimates foreign investors have bought about 40 percent of Build America Bonds. He says they pay slightly higher interest than comparable corporate bonds with a little extra security.

MATT FABIAN: So triple-A Utah. Very low risk of payment default. It’s hard to find something quite that safe in the corporate market. Especially now, with conditions still so uncertain.

But conditions for states are uncertain too.

David Blair follows the municipal bond market at PIMCO. He says investors might be cautious about a state like California, whose fiscal crisis has made international headlines.

DAVID BLAIR: There’s a story to tell. There’s some concerns about the credit. When you have those situations going out and marketing it can really help keep the borrowing costs a little bit lower.

California sold $36 billion worth of bonds this year and needs to sell a lot more. A state spokesman says investors here may be suffering from “California fatigue.” So it makes sense to look further afield.

In New York, I’m Amy Scott for Marketplace.

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