Rates Double On Some D.C. Bonds
Thursday, September 18, 2008
The interest rates on some of the District's bonds doubled this week as a result of intense tightening in the credit markets.
That means the city will have to fork over several hundred thousand more dollars to creditors this week, said D.C. Treasurer Lasana Mack. He added that the District had already budgeted for fluctuations in rates. The interest rate on the affected bonds increased from roughly 2.75 percent to 5.50 percent.
The District has about $600 million of these bonds, which are known as variable rate, because the interest rates can change from week to week. Traditionally, Mack said, this type of bond offered advantageous rates and not all have experienced the same increases.
"There's been unprecedented upheaval in the financial marketplace this week. I would expect that there would be some calming in the markets in the near term and that the variable rates will not stay at this level," Mack said.
Particularly affected were variable-rate bonds issued by the District and brokered through Lehman Brothers, the firm that filed for bankruptcy protection this week.
The variable-rate bonds involved account for about 14 percent of all outstanding District bonds. The bonds fund police stations, schools and other capital spending. Mack said he doesn't expect the spike in rates to affect the District's ability to make these expenditures.