As a sharp aversion to all things debt-related has scotched hundreds of municipal-bond auctions in recent weeks, it's become clear that the municipalities are the real losers in this crisis.
 
But what often has gone unmentioned during the auction rate securities meltdown is that the real winners are the very people who hold the bonds that won't sell—provided, of course, they don't need the cash right away.
 
For every municipality that sees its rate raised to 8 percent, or even 20 percent in the case of the Port Authority of New York and New Jersey, there's an investor on the other end of the deal receiving it.
 
Individual investors and corporate treasurers alike are finding that there may not be buyers, but there sure is high yield.
 
But that doesn't stop some from playing victim. Already at least one class-action law firm is investigating sales practices of these securities by Citigroup.
 
And this week, MasterCard, US Airways, 3M, Continental Airlines, Charles River Labs, and Intuitive Surgical all stated in annual reports that some of their auctions have failed since January.
 
But while their legal rhetoric includes the requisite amount of caution, there are signs suggesting that the liquidity problem is a temporary one. No New Yorker wants the Port Authority to be stuck with a big interest rate, but what New Yorker complains about getting a 20 percent, or even 8 percent, yield in this market?
 
Indeed, the Port Authority bonds found a buyer at 8 percent just a week after Goldman Sachs abandoned them at auction. Institutional investors such as hedge funds and distressed bond funds see the value in these low-risk securities at higher rates.

The state of Wisconsin hasn't had a failed auction yet, but it sold issues at between 10 and 11.5 percent last week. Yesterday, its bonds sold for 7.8 percent. It's a good sign, but Wisconsin's capital finance director Frank Hoadley isn't sure it means a beginning to the end of this crisis. "Anything at all at this point is 100-percent speculation," he says.
 
Still, there's reason for optimism. "Auction failures should subside in the next few weeks as fresh and existing buyers look to capture the near-extreme value now available in that market," according to Municipal Market Advisors in their weekly outlook.
 
In fact, some in the bond market speculate about whether that's precisely what the banks had in mind when they stopped saving the auctions several weeks ago: After a spate of failures, the buyers will come back if the yields are attractive enough, letting the banks off the hook.

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