Municipal rates declined significantly in the last few weeks, with the 30-year MMD down almost half a percentage point lower than a month ago. Hospitals ready to go to the bond markets can seize the day, but rates can easily move the other way.
Municipal yields plunged on October 15 as investors rushed out of the equity markets and into the relative safety of fixed income.
The 30-year MMD closed at 2.75%, about 30 basis points higher than the record low reached 2 years ago. Some deals that came to market actually priced "through" the previous day's MMD scale.
Given that healthcare credit spreads are also compressed, the borrowing environment for hospitals could hardly be more favorable.
So it's no surprise that the rally triggered a flurry of frantic emails from bond underwriters urging hospitals to revisit refunding opportunities.
A drop in rates across the municipal yield curve never hurts borrowers, but unless a hospital is ready to price bonds, volatility in the markets could just as easily go the other way and wipe out any savings.
We do expect credit spreads --the premiums paid to investors on top of the MMD index-- to stay compressed for the near term.
Faced with volatility, hospitals with refunding opportunities are advised to define some parameters for moving forward and resist the urge to start what can be an expensive and distracting process if these parameters aren't met.
At a minimum, savings projections should be stress-tested to determine if they can survive a reasonable amount of volatility.
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