Public Finance Market Update Trends
Interest Rates on the Rise
Graph 1, above left, compares Bloomberg AAA interest rates from the beginning of the year to the present. The results first show how much interest rates have risen in the municipal bond market, with interest rates as much as 0.78% higher on the long end of the yield curve. The results also show that the short end of the yield curve has only increased by approximately 0.50%. This indicates that there is some slope returning to the yield curve, allowing issuers to capture value by coming down the yield curve. Graph 2, above right, studies the BQ benefit in IL by comparing a AA+ NBQ bond issue with a AA+ BQ one. While we do see some benefit to BQ bonds, that benefit does not significantly materialize until around the 12-year term where it is 0.25% in the two bond issues under comparison.
