Yosca of BNY Mellon Capital Markets Says Demand from High Net Worth Investors has been "Astounding"

Dec. 23, 2008 - PRLog -- MuniMarket Pulse, a podcast of DerivActiv, LLC, recently spoke with Fred Yosca, Manager of Underwriting and Trading at BNY Mellon Capital Markets, recently quoted in The Bond Buyer and Bloomberg Financial Services, talks about the shrinking number of bidders in the muni market. He also speaks to Moody’s changing outlook on bond insurers and the extraordinary demand for munis from the high net worth investor.

To listen to the podcast episode or download the transcript, visit: http://podcast.derivactiv.com/?display=Fred_Yosca_Shrinking_Muni_Bidding_Pool.

During the podcast, host Johan Rosenberg, CEO of Sound Capital Management talked with Mr. Yosca about the pricing difference between retail and institutional bidders and why munis aren’t included in TARP relief. Rosenberg asked “What’s the reason that munis are not getting any relief from TARP?”  According to Yosca, “…the default rate on investment grade municipal bonds is so infinitesimally small that it shouldn't be an issue and the second thing which is related to the first is that, at least in the case of general obligation debt, they have the ability to raise their revenues by increasing taxes. And I think going back even to the Depression, the track record is such that the default rate is so low that Paulson's probably saying, “these guys don't need the relief.”

Rosenberg then suggested the interview focus on what Moody's did to Assured Guaranty, FSA, dropping their ratings below a "AAA" level.  In response, Yosca said “That just destroys the business model. The value added of insurance the last 20 years is it was like selling life insurance on Mount Olympus.  Nobody dies there so what you do is collect premiums you never have to pay out.  Well, selling municipal bond insurance was pretty much the same thing from a risk standpoint.  The reason it was a successful product was it was saving issuers on their borrowing costs because it was upgrading a perfectly adequate "A" rated investment grade issuer to a "AAA" level.  And in doing so saving them 25, 30, 40 basis points in net interest cost on the new issue, which more than covers the cost of the insurance.  It was a cost saving device for issuers.”

Roseberg and Yosca continued on during the podcast discussing the secondary market, inventory levels and an after Thanksgiving rally.

To listen to the podcast episode or download the transcript, visit: http://podcast.derivactiv.com/?display=Fred_Yosca_Shrinki....


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