Insured Short-Term Muni Bonds Surge as High as 9%

Bloomberg reports:

Rates on short-term municipal securities guaranteed by MBIA Inc.'s and Ambac Financial Group Inc.'s insurance units surged after credit rating companies downgraded the guarantors.

Bonds issued by Minneapolis, Minnesota-based Allina Health System, Louisville, Kentucky-based Baptist Healthcare and Houston-based Texas Children's Hospital insured by MBIA's insurance unit surged as high as 9 percent, almost doubling a day after the guarantor was downgraded five levels. Yesterday, before New York-based Moody's Investors Service lowered its rating on MBIA's MBIA Insurance Corp. to A2 from Aaa, the bonds yielded 5 percent. Moody's lowered Ambac three steps to Aa3.

``Downgrading MBIA to A2 may start to rattle the money- market funds again,'' said Richard Larkin, research director at Herbert J. Sims & Co. ``There could be more market disruption in munis ahead, as we saw earlier this year.''

Fed "easing" can't lower interest here.