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Municipal bonds pay off
The city has been a hit with individual investors looking to stow money away from the volatile market.
Late last year investors snapped up $300 million in city-issued bonds to pay for building construction, and their voracious appetite prompted the city to sell another $650 million earlier this month.
Here is a look at the “muni” market and how it works:What are “muni” bonds?
State and local governments sell municipal bonds to raise money for major public projects from roads to sewers. “Each bond is, in effect, an IOU,” the city comptroller’s office explained.
Why are they desirable investments?
Municipal bonds are relatively safe, the interest earned is tax-free and they offer higher yields than similar investments. “If you were to go out and buy long-term municipal bonds you’d probably be able to pick up a bond for 5 percent or more. A 30-year treasury bond right now has a yield of 3.39 percent,” said Joseph T. Darcy, a senior portfolio manager at Dreyfus Corp.
How important is the credit rating for a bond?
Investors need to take a close look at the credit rating of the bond issuer, Darcy said. For example, Standard & Poor’s rates New York City General Obligation bonds at “AA.” That’s a good rating compared “BBB-” by Standard & Poor’s for Yankees debt to build their new stadium. (Yankee debt bonds go to auction today). There are some concerns that municipalities — not just New York but elsewhere — will lose credit standing as budget deficits mount.
Is the city a well-respected issuer of bonds?
The city is highly recognized by investors in the bond market. It is known to issue bonds frequently and it attracts a fair share of the $2.6 trillion “muni” bond market, Darcy said.
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