Tags: Muni | Debt | Fight | Effects

Muni Board Watching Debt Fight's Effects

Monday, 01 Aug 2011 12:40 PM

Regulators are keeping an eye on the U.S. municipal bond market as Congress races to approve a deal to keep the country from defaulting on its debt, the chairman of the board that drafts rules and collects bond information said Monday.

If the United States did default on its debt or if a rating agency downgrades the country's triple-A credit rating, the Municipal Securities Rulemaking Board would give guidance on the pricing of muni debt — if the board determined the pricing was unclear or unfair, the MSRB chairman said. Such guidance typically serves as a warning or stern reminder if the board sees a threat to the market's transparency.

"We will issue guidance on appropriate pricing to make sure dealers act in a fair and reasonable way with their customers," the chairman of the Municipal Securities Rulemaking Board, Michael Bartolotta, told a conference call with reporters.

The MSRB writes the rules for the $2.9 trillion market, which the U.S. Securities and Exchange Commission enforces. It also posts information and important documents on the website known as "EMMA."

"The MSRB has been and continues to monitor events in Washington and our systems are prepared to meet our responsibility as a market repository," Bartolotta said, adding that the board has assigned a special team to watch how events unfold.

Rating agencies have warned certain bond issues could be downgraded in the fallout of the fight over raising the limit on how much debt the United States can take on. The agencies have also said they could lower the U.S. credit rating.

Some municipal debt is tied directly to the federal government, including pre-refunded bonds secured by federal securities. A federal shutdown, meanwhile, could hurt the ability of cities and states near the capital to pay their debts, the agencies have said.

On Monday, Congress began the final steps of approving a deal that would raise the debt limit and cut deficits over the next decade.

Just as states and city governments have worried about a U.S. default or downgrade, they have fretted about what the deal will include. Conservative Republicans insist it must contain steep spending cuts.

Because most major domestic outlays flow through the states, legislators and governors are worried that the deal could cut off funding for programs just as state budgets begin to recover from the 2007-09 recession. Last month, most states began their fiscal year have to cut more than $100 billion total in spending because of revenue shortfalls.

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Regulators are keeping an eye on the U.S. municipal bond market as Congress races to approve a deal to keep the country from defaulting on its debt, the chairman of the board that drafts rules and collects bond information said Monday. If the United States did default on...
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