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COVID-19/coronavirus has certainly made for an interesting time in the markets. The bond market has been on a mostly wild and very volatile ride the last few weeks. During this time, the 10 Year Treasury has seen daily moves of 20-25bp when historically a move of 5bp would have been considered a wild and volatile day. The equity markets have had swings of 1,000 points or more, setting records for one day moves.

Uncertainty is driving this action. Uncertainty in the market leads to volatility. There is “panic” selling occurring. Bond mutual funds are seeing many redemption requests, which cause the fund to have to sell bonds. Throw in the one day market swings and the rapid movement of the market in a very short time period, and we have a serious disconnect between buyers and sellers. Late the week of March 9, 2020 the municipal bond market became so inefficient that new issues were not able to be sold and most deals were pulled and put on “day to day status.”

What should issuers be doing to address this?

At this time, nothing. Continue to keep moving projects forward. All indications are that we will be back to “business as usual” at some point, and there is no reason to hold up or slow walk projects at this time. As noted above, uncertainty is driving this current market action.

Please keep all this in perspective. While we are currently seeing crazy one day moves in interest rates — some days up and some days down — in the near term when markets resume operating more normally, we will experience historical or near historical lows in interest rates. At that time, it will make sense to explore savings on refundings, and the projects you need to finance may be able to be done at very low interest rates.

Baker Tilly is monitoring the market situation very intensely and very closely. We remain committed to continuing to ensure our clients remain in a strong position for success.

For more information on this topic, or to learn how Baker Tilly specialists can help, contact our team.

Baker Tilly Municipal Advisors, LLC is a registered municipal advisor and wholly-owned subsidiary of Baker Tilly US, LLP, an accounting firm. Baker Tilly US, LLP, trading as Baker Tilly, is a member of the global network of Baker Tilly International Ltd., the members of which are separate and independent legal entities.

Tim Sutton
Managing Director
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