The Municipal Market Data 30-year tax-exempt bond yield continues to break record lows and reached 2.22% last Friday as investors scramble to pull cash out of equities and into fixed income. For hospitals thinking about issuing debt, the rally is becoming increasingly hard to ignore.
July 5, 2016: The MMD reached a record low of 1.94%.
The benchmark triple-A 30-year Municipal Market Data (MMD) index had a dizzying last week, ending on Friday at 2.22%, the fourth record-breaking day in a row.
According to Lipper, municipal bond funds reported the 36th consecutive week of inflows as investors switch out of equities and into fixed income. Year to date, muni bond inflows are estimated at $27 billion.
A majority of industry observers expect that the Fed will not raise interest rates at the conclusion of its two-day meeting on Wednesday.
In muniland, the lower supply may also help keep rates low. The calendar for municipal negotiated issuance –how most not-for-profit hospitals issue long term debt– is set to $3.7 billion this week according to Ipreo, down from $7.5 billion last week.
The low rates have caught the attention of healthcare providers, and some are fast-tracking plans to issue debt so they can lock in the lowest cost of funds anyone can remember before the party is over.
Assuming an average credit spread of 100 basis points, an “A” category hospital could issue tax-exempt debt due in 30 years at around 3.25%. A “BBB” category hospital would be looking at around 25 basis points more.