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.
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 â€“ including governments, hospitals, utilities and universities â€“ can shelter themselves from the interest-rate volatility by buying back their own bonds without “extinguishing” the debt.