Frequently Asked Questions on Bonds
1. What is the rating of Maryland's General Obligation Bonds?
The most recent rating of Maryland's bonds was February 22 and February 23, 2012. Maryland is one of only eight states that is rated AAA by all 3 rating agencies. Standard & Poor's and Fitch Ratings each assigned ratings of AAA, with a stable outlook to the State of Maryland general obligation bonds. Moody's Investors Service assigned a rating of Aaa with a negative outlook based upon the State's ties to the U.S. sovereign rating.
Moody's first assigned a negative outlook to Maryland and four other states (Virginia, New Mexico, South Carolina and Tennessee) on August 4, 2011 after the August 2, 2011 assignment of a negative outlook to U.S. government debt. On December 7, 2011, Moody's completed their review of the federal exposure of each of these states. As a result, the outlooks for South Carolina and Tennessee were changed to stable but Maryland, Virginia and New Mexico retained the negative outlook.
In its report dated December 7, "Most Aaa-Rated State and Local Governments Revert to Stable Outlooks, Despite Negative Pressure on U.S. Government Rating", Moody's stated, "The Aaa-rated state and local government issuers with outlooks that have been restored to stable are considered to have lesser financial and economic linkage to the U.S. government, and if the U.S. sovereign rating was downgraded by one notch, these state and local governments could continue to be rated Aaa. In contrast, those municipalities with negative outlooks would not likely be rated higher than the U.S. government."
2. How can I buy Maryland bonds?
You can purchase Maryland bonds from brokers.
3. What is the dollar amount of the bonds?
The dollar amount of bonds at par is $5,000 or multiples of $5,000. If the bonds are sold at a discount or premium, the price will vary but will still be in the $5,000 range.
4. What is the duration of the bonds?
Maryland's General Obligation Bonds must mature within 15 years. However, a portion of each total bond issuance matures annually. So you can request a maturity that is appropriate for your investment portfolio from your broker.
5. What is the interest rate(s) on the bonds?
Interest rates vary depending on the term of the bond. Bonds that mature in a shorter period will generally have a lower rate of interest and bonds maturing at the end of the 15 year time period will usually have higher rates of interest. Of course, market and economic conditions greatly affect the rates. We will not know the rates on the GO bonds in our next issue until the day of the sale.
6. What other bonds does the State issue?
In addition to Maryland General Obligation bonds, agencies in the State also issue bonds. For instance, there are Consolidated Transportation Bonds and Bay Restoration Bonds. Proceeds from the Community Development Administration Bonds are used to make mortgage loans, primarily to first time home buyers. The Maryland Health and Higher Education Facilities Financing Authority (MHEFFA) uses bond proceeds to build hospitals and educational institutions. The University System issues bonds to finance higher education facilities. Finally, many local governments in Maryland also issue bonds. You should check with your broker about the rating of these bonds and about any special call provisions.
7. Is there more information available?
Look at the link for Official Statements to find out more about general obligation bonds that have been recently sold by the State. The Official Statements also include important financial and economic information about the State that was current at the time the bonds were sold. You can also call Amber Teitt in the State Treasurer's Office with any questions. Her number is 410-260-7920.
Continuing disclosure and information on the trading activity of Maryland General Obligation Bonds are available on the website for the Municipal Securities Rulemaking Board
The Municipal Securities Rulemaking Board (MSRB) also has an Education Center to help investors understand municipal bonds. The Education Center can be accessed at
http://emma.msrb.org/EducationCenter/educationCenter.aspx
