How local newspapers impact municipal bond markets.

A new study finds that health of local newspapers can have a significant impact on a local governments ability to access capital. As you read the excerpt that follows keep in mind that rising yields make issuing debt more expensive for the issuer (local government) and that the price of the underlying security has an inverse relationship to yield (i.e. bonds lose value as yields rise).

“They found that three years after a newspaper shuts, market yields climb by 6.4 basis points, and for newly issued bonds, yields are 5.5 basis points higher. (A basis point is 1/100th of a percentage point.) The effect is even more pronounced in areas with already bad governance: The authors found that newspaper closures increase borrowing costs by 12.3 basis points in states with low-quality governance, compared with only 5.5 basis points in states with high-quality governance. And for revenue bonds, which are backed by project-specific cash flows, secondary and offering yields climbed 9.9 and 10.6 basis points, respectively. (Bond prices and yields move in opposite directions.)”

The article provides some interesting rationale. Follow the link below for more information.

bonds debt
Source: Mary Childs | "Newspaper Closings Have Implications for Investors" | Barron's | 07/28/2018 | Visit