Bonds trade just like stocks. The Bond Houses determine what yield will attract enough buyers to purchase the issue, lets say 4%, then they sell these at a $1000 per bond. Once the whole issue is sold and closed they start trading in the free market, rising and falling just like stocks depending on many different variables. The fact that the DFL has exceeded the 3% rule puts all current holders on Minnesota Muni’s at risk.

I have been out of the bond business for years but I would bet todays action in the Senate caused currently issued MN. Muni bonds to sell off today, making their yield rise. It will also cause this new issuance to be issued at a higher interest rate costing the state potentially millions more to service the debt each year.

If, as some have suggested we lose our AAA rating, say down to just A or even triple B, this could cost our state billions over the next 20 years. This is extremely irresponsible behavior on behalf of the DFL.

Dave Strom and or Phil Krinkie need to talk to the large bond houses and get expert opinions on the record. At a time of slowing economic activity and falling tax revenue a bonding bill this large could be considered fiscal suicide for our state.

Something else you need to be aware of. MBI and Ambac are bond insurers. Their stock’s have both been savaged of late on Wall Street, dropping from the low hundreds per share to single digits. This has caused much angst for anyone holding any type of insured Muni bonds. Their has been talk for weeks that both of these companies may go bankrupt. If that were to happen the Muni bond market would be flooded with selling. MBI and Ambac has insured many municiple bonds allowing for issures to offer their bonds at lower interests rates. No bond purchaser is going to buy this years bond issuance at 4% if they can get 5% or 6% in the open market. 1% or 2% may seem like chump change but in this example it’s a 25% to 50% larger interest expense.

For the DFL to push through a bonding bill of this size, at this time in history, is breathtakingly inexcusable and fiscally moronic. It could easily results in billions of wasted interest expense over the coming years for our state. Do think the DFL knows that and will then demand an income tax increase so we can preserve our AAA rating? Personally, I don’t think they are that smart but I do believe they are that conning.