Skip to content
Subscriber Only

Deals Gone Bad Push Muni Borrowers to Dump Interest-Rate Hedges

Updated on

With borrowing costs about to rise, why are U.S. municipal-bond issuers paying to dump interest-rate hedges?

Because they’re hoping to avoid the fate of Chicago, by simplifying their finances and controlling the timing of when they unwind floating-rate bond deals. Last month, the city tried to refinance debt tied to derivatives that went awry while it still had investment grades from the three biggest rating companies. Moody’s Investors Service cut Chicago to junk before it could sell the securities, driving up borrowing costs.