From John Hill’s article in the Sacramento Bee:
The state Assembly tried to send some relief to local governments reeling from higher interest costs Monday with approval of a bill that allows cities, counties and other bond issuers to buy back their own bonds.
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Markets for two types of municipal bonds have been hit with turmoil in recent weeks as a side effect of the meltdown in subprime mortgages. The bonds are sold at short intervals, from weekly to monthly, to investors looking for short-term returns.But when the companies that insure the bonds were shaken by losses in mortgage-based securities, the municipal market was also rattled, leading to higher interest rates.
SB 344 makes it clear that local entities – including governments, hospitals, utilities and universities – can shelter themselves from the interest-rate volatility by buying back their own bonds without “extinguishing” the debt.
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