Credit rating cuts at Ambac and MBIA hurt municipal bonds
US lawmakers will consider reinsuring municipal bonds after credit rating cuts at leading bond insurers Ambac and MBIA killed the market, the FT reports.
It valued the market at $2,700bn.
Barney Frank, chairman of the House financial services committee, will hold the hearings. Among the proposals is legislation for the US Treasury to act as a re-insurer of debt and to authorise the Federal Reserve to prop up dysfunctional short-term financing markets.
But the FT said that even struggling California's has sold more than $13bn in long term debt, questioning the need for federal support.
"We have to make sure that the legislation is targeted at parts of the market that are still in difficulty and that it is not just a blank cheque," says Dan Solender, director of municipal bond management at Lord Abbett.
Among the four proposals is a plan to provide federal reinsurance for municipal-only bond insurers in an effort to lower costs.
Ratings agencies will also come under pressure to align state and local governments' credit ratings with those used for corporate bonds. Some municipal borrowers say their ratings should be higher in light of relatively low historic default rates.
