A recent Bloomberg BNA report on the Texas Water Development Board’s (TWDB) offering documents for a $340.3 million bond issue for water projects cast light on a growing trend in the municipal-bond market – looking abroad for potential buyers. The prospectus speaks to the growing presence of foreign buyers by including additional information for investors in the United Kingdom, Eurozone, Hong Kong and Switzerland.
TWDB is a state agency charged with administering cost-effective financial assistance programs for the construction of water projects in the state. Bloomberg noted that its prospectus reflects the growing role that foreign investors are taking in the U.S., state and local debt market as low or negative interest rates cause them to look worldwide in pursuit of better yields. By the end of 2017, buyers abroad owned a record $105 billion of U.S. municipal debt, about twice what they held a decade ago, according to Federal Reserve Board data.
The TWDB disclosures are notable because tax-exempt bonds offer lower yields and are typically not attractive to foreign investors who are not required to pay federal income tax and thus don’t receive any advantage from traditional municipal bonds. However, TWDB first included such notices to investors in a fall 2017 bond deal, attracting orders for the bonds from foreign investors. TWDB Chairman Peter Lake noted that widening the scope of potential investors can improve pricing and liquidity for the agency’s bond sales.
The article “Texas Looks to Europe, Asia as It Sells Bonds for Water System” appeared in Bloomberg BNA on April 10, 2018.