Leading Muni Insurer Earns Top Marks, Fed Watching

Klotz on Bonds

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<h3>James A. Klotz</h3>

James A. Klotz

S&P Global Ratings affirmed Assured Guaranty’s AA rating and stable outlook, the strongest rating S&P assigns to any active muni insurer.

Assured is the largest muni insurer, ahead of Build America Mutual. S&P affirmed the same rating for BAM last month (“Alluring Muni Yields and a Good Night’s Sleep”).

Positive signs on the health of the two muni insurers come as the Federal Reserve Board signals its willingness to provide additional support to the market if necessary.

Leading Muni Insurer Earns Top Marks, Fed Watching

Muni insurer possesses “excellent capital”

In its research update this month, S&P noted Assured’s “excellent capital and earnings with a meaningful capital adequacy buffer at the current rating” and its “very strong competitive position.”

Indeed, both Assured and BAM are writing new business amid concerns surrounding the economic fallout from COVID-19.

Year to date, Assured has $7.68 billion of insured volume in 469 deals vs. $5.71 billion in 423 transactions in the first six months of last year, according the Bond Buyer.

“In addition to reiterating how our strong capital position, exceptional liquidity and proven business model support our AA financial strength ratings, S&P noted our increased opportunities in the current market environment,” Assured said in a statement.

“These opportunities resulted in increased municipal bond insurance penetration during the second quarter and significant increases in new business volume for Assured Guaranty in both primary and secondary public finance markets.”

Fed ready to step up if necessary

In the wake of encouraging news on the bond insurers, a Fed member said it would consider stepping in if the muni market experiences volatility as it did earlier this year.

Speaking at a conference earlier this month, Fed member Kent Hiteshaw said he hoped the turbulence in March and April, triggered by panic selling in the wake of COVID-19 concerns, wouldn’t be repeated.

“My job, and our team’s job, is to continue to monitor the market and if additional intervention is required, the Fed is prepared to consider it,” he said, according to the Bond Buyer.

Last month the Fed launched the Municipal Liquidity Facility initiative, designed to provide up to $500 billion of credit to state and local governments. When the program was unveiled, the Fed promised it would “continue to closely monitor conditions in the primary and secondary markets for municipal securities and will evaluate whether additional measures are needed to support the flow of credit and liquidity to state and local governments.”

The program expires on Dec. 31, 2020.

As always, investors looking for municipal bonds that suit their objectives should do their homework and ask experienced specialists for help if needed.

With the recent news regarding muni insurers and the Fed’s support of the market, they can have some peace of mind doing so.

James A. Klotz is the President of FMSbonds, Inc.
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Jul 29, 2020

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