Current Issues in the Municipal Auction Rate Market
Municipal Auction Rate Securities (ARS) have recently experienced tremendous liquidity strains. Strong, well known municipal issuers with auction securities have seen their rates increase by hundreds of basis points even if their auctions did not fail. These issuers are not in default, but are caught in a liquidity crisis. ARS are estimated to comprise half of the $300+ billion total auction market and approximately 8% of the $2.5 trillion of outstanding municipal bonds.
In this commentary, specific issues relating to the current auction market are addressed.