Auction Rate Bond Market feels the pinch

There has been unforseen intervention by the US Fed in the American markets, however there is still a domino effect, today we saw that there was a problem with the Auction Rate Bond Market and it has culminated in an investigation by nine state regulators.

It was said in the past that the Auction Rate market was dead after Wall Street banks ceased to purchase their own unwanted bonds, Auction Rate Securities are not liquid and this has resulted in the above case which broke in the news today. Investors were lead to believe that the bonds were a ‘cash equivalent’ however they are not, and the regulator is pushing to over rule the bonds because if money was to be seen as cash going in it has to be treated as cash on the way out (i.e.: it can’t be tied into conditions).

Auction Rate Bonds allow issuers such as Governments, Hospitals and Municipalities to issue …

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