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Stocks, credit markets not likely to affect Hays Road Bond program

Tuesday, October 7, 2008 by Jacob Cottingham

With the recent volatility in the stock market and fears of credit markets seizing, some taxpayers and officials have expressed concerns over how this is affecting regional bonds.

 

For Hays County, an upcoming $207 million road bond election is foremost on the horizon. However, according to Dan Wegmiller of First Southwest Company, bond counsel for Hays County, citizens should not worry too much. He recently explained the economic impact the crisis may have on the bonds.

 

“Credit markets are not as easy as they were to access a few weeks ago and even a few months ago,” he said. “But in general, we’re still seeing public projects get funded, and we’re still seeing fairly attractive interest rates.”

 

Wegmiller said that long-term debt interest rates are still around the 5 percent range, which he said is “still very attractive,” in a historical context. “When I started (16 years ago) we were funding 8 and 9 percent bonds. The thing I’m telling clients is that it used to be, as a public sector client, you can say ‘I want to sell bonds six months from now on a Thursday’ and there’s probably a 99 percent chance you can do it on that day. Today, we need a little more flexibility and timing.” He said certain announcement days for economic news might prove to be slightly more difficult days to get good interest rates.

 

As far as the effects of a proposed bailout package, Wegmiller said it was essential that any organized government action clear up concerns about liquidity. “If that doesn’t happen, we’ve got bigger problems than just one bond deal,” he said, “It’s a marketplace that will be disrupted nationally and worldwide.”

 

Wegmiller did note that there were advantages to the situation for Hays County. Explaining ‘flight to quality,’ he told In Fact Daily, “Whenever there’s concern with any issue, people take their money and they go to quality places.” Since tax-exempt municipal securities are still drawing low yields, they’re not at the root of any of the problems, he said.

 

In addition, because municipal issuers are not defaulting on their obligations yet, Wegmiller noted, “They’re still premium securities to hold.” This means that in a volatile marketplace the relative stability and safety of municipal bonds may actually help lower interest rates.

 

Despite this, Wegmiller declined to get into forecasting the effects of government action or inaction saying, “I kind of take it day by day right now as far as the markets go, we’re in a period of time we’re not extremely familiar with.”

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