Public Finance Market Update Trends
The Value of a Trusted Advisor
The first graph above compares two bond issues with the following similarities: (i) size (approximately $6 million each); (ii) rating (A1/A+); (iii) maturity schedule; (iv) sale date (12/3/2018); (v) tax status (BQ); (vi) and sale type (negotiated). They also contain the following differences: (i) different underwriters; (ii) one bond issue engaged a municipal advisor (the other had no municipal advisor); (iii) and the one without the advisor purchased insurance (the advised issue did not utilize insurance). This graph shows that the advised bond issue outperformed the other, even though the latter utilized insurance. In fact, the benefit for nearly every comparable maturity ranged between 8-25 basis points, or 0.08% – 0.25%. Assuming a $6 million financing, a 10 basis point impact equals $6,000 per year of interest. Furthermore, the underwriter’s discount (fee paid to the underwriter) and the advisor’s fee, in aggregate, was 0.753% for the advised client and 1.136% for the underwriter’s discount alone in the other issue. In dollars, and assuming a $6 million par amount, the advised client paid approximately $45,180, while the other issuer paid approximately $68,160, a difference of nearly $23,000. Last, this analysis does not include the insurance premium paid by the non-advised client because that information is not readily available. This comparison is just one example of the value a municipal advisor may provide to public finance clients.
Public Finance Market Update: Featured Economic Indicator
Strong Consumer Spending Reflects
The December Consumer Spending report, the most recent available, shows that consumer spending rose strongly in November, led by durable goods such as trucks and appliances. Consumer outlays are on pace for the best quarter of growth in four years. Growth in spending has been trending above income in 2018. This has resulted in the personal savings rate falling to 6.0%, the lowest monthly rate since March 2013. Strong spending and modest saving suggests consumers were confident in the middle of the holiday shopping season.
Source: Wall Street Journal, www.bea.gov
