Similar to what has been observed at U.S. Treasury auctions recently, bond auctions are now failing to receive any bids. Considering the bond market is multiples larger than almost every other market, this latest trend poses another extreme stress to the FED and Wall Street. The latest retail sales data just released is another complete sham. Almost every major retailer reported dismal sales in January and yet official numbers just released show a larger than expected gain of 0.3%. The fine print stated the gains were led much by increased auto sales. This quote from MarketWatch best sums up this suspicious claim... "Economists were surprised by the gain in auto sales. Car companies reported dreadfully slow rate of auto sales in January, with sales falling to an annual sales rate of just 15.3 million."
We have witnessed two days of fantasy land equity rallies based yesterday on Buffett and now retail sales. This just shows complete and utter desperation on the part of the FED and Wall Street.
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Auction-Bond Failures Roil Muni Market, Pushing Rates to 20%
By Martin Z. Braun
Feb. 13 (Bloomberg) -- A wave of bonds sold by U.S. municipal borrowers with rates set through periodic auctions failed to attract enough buyers in recent days as banks including Goldman Sachs Group Inc. and Citigroup Inc. that run the bidding wouldn't commit their own capital to the debt.
Rates on $100 million of bonds sold by the Port Authority of New York and New Jersey, with bidding run by Goldman, soared to 20 percent yesterday from 4.3 percent a week ago, according to data compiled by Bloomberg. Presbyterian Healthcare in Albuquerque and New York state's Metropolitan Transportation Authority also had failures, officials said.
Investor demand for the securities has declined on waning confidence in the credit strength of insurers backing the debt, and on reluctance by dealers to submit bids and risk ending up with too many of the bonds. The failures in a market where local borrowers have more than $300 billion of debt outstanding follow unsuccessful auctions of student loan-backed bonds last week.
``It's the beginning of the end for the auction-rate market,'' said Matt Fabian, a senior analyst with Concord, Massachusetts-based Municipal Market Advisors. ``Banks have stopped supporting the market.''
Auction bonds have interest rates that are determined by bidding that typically occurs every seven, 28 or 35 days. When there aren't enough buyers, the auction fails and bondholders who wanted to sell are left holding the securities. Rates at failed auctions are set at a level spelled out in the terms of the debt.
Reduced Demand
``We have seen widening spreads, reduced demand for certain auction rate securities and failed auctions, including some auctions in which Citi acted as broker dealer,'' Danielle Romero-Apsilos, a spokeswoman at New York-based Citigroup Inc., said in a statement.
Michael DuVally, a spokesman at New York-based Goldman, declined to comment.
The turmoil in the auction-rate market is the latest fallout in a credit squeeze that began with the subprime mortgage market collapse last year and led to at least $133 billion in credit losses and asset writedowns. For borrowers, the failures mean higher borrowing costs just as the economy is slowing, threatening revenue.
Bidding by dealers is essential to the smooth functioning of auction securities and banks are now wary of loading their balance sheets with the bonds, said Alex Roever, a JPMorgan Chase & Co. fixed income analyst.
``This market has been under a tremendous amount of stress,'' Roever said. ``Without the dealers providing an active secondary bid, it's very hard for these transactions to clear.''
Latest Wave
The soured auctions in recent weeks are the first since September, when about $6 billion of auction debt failed on investor concerns that bond insurers may lose their AAA ratings, Roever said in a Feb. 8 report. The latest wave began as recently as Jan. 22, when auctions run by Lehman Brothers Holdings Inc. for Georgetown University and Nevada Power failed.
Presbyterian Healthcare in Albuquerque, operator of seven hospitals throughout New Mexico, had rates on $38.7 million of debt reset at 12 percent after an unsuccessful auction run by Goldman yesterday. Bob Davis, Presbyterian Healthcare's vice president for treasury services, confirmed the failure, declining further comment.
Failed auctions have hurt companies that bought those variable-rate securities as short-term investments with excess cash, and are unable to sell their holdings. Bristol-Myers Squibb Co., the New York-based maker of the anti-clotting pill Plavix announced Jan. 31 that a $275 million writedown of its holdings, which totaled $811 million at the end of 2007.
About a third of 449 companies polled in a survey last May for the Association for Finance Professionals said they had investments in auction-rate bonds.
