WASHINGTON Aug 1 Regulators are keeping an
eye on the U.S. municipal bond market as Congress races to
approve a deal to keep the country from defaulting on its
debt, the chairman of the board that drafts rules and collects
bond information said on Monday.
If the United States did default on its debt or if a
rating agency downgrades the country's triple-A credit rating,
the Municipal Securities Rulemaking Board would give guidance
on the pricing of muni debt -- if the board determined the
pricing was unclear or unfair, the MSRB chairman said. Such
guidance typically serves as a warning or stern reminder if
the board sees a threat to the market's transparency.
"We will issue guidance on appropriate pricing to make
sure dealers act in a fair and reasonable way with their
customers," the chairman of the Municipal Securities
Rulemaking Board, Michael Bartolotta, told a conference call
The MSRB writes the rules for the $2.9 trillion market,
which the U.S. Securities and Exchange Commission enforces. It
also posts information and important documents on the website
known as "EMMA."
"The MSRB has been and continues to monitor events in
Washington and our systems are prepared to meet our
responsibility as a market repository," Bartolotta said,
adding that the board has assigned a special team to watch how
Rating agencies have warned certain bond issues could be
downgraded in the fallout of the fight over raising the limit
on how much debt the United States can take on. The agencies
have also said they could lower the U.S. credit rating.
Some municipal debt is tied directly to the federal
government, including pre-refunded bonds secured by federal
securities. A federal shutdown, meanwhile, could hurt the
ability of cities and states near the capital to pay their
debts, the agencies have said.
On Monday, Congress began the final steps of approving a
deal that would raise the debt limit and cut deficits over the
Just as states and city governments have worried about a
U.S. default or downgrade, they have fretted about what the
deal will include. Conservative Republicans insist it must
contain steep spending cuts.
Because most major domestic outlays flow through the
states, legislators and governors are worried that the deal
could cut off funding for programs just as state budgets begin
to recover from the 2007-09 recession. Last month, most states
began their fiscal year have to cut more than $100 billion
total in spending because of revenue shortfalls.
(Reporting by Lisa Lambert; Editing by Jan Paschal)