Gross, SEC Fail to Break Auction-Rate Bond Paralysis

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http://www.bloomberg.com/apps/news?pid=20601014&sid=a_hBd2IhbirY&refer=funds

March 14 (Bloomberg) -- Billionaires Bill Gross and Wilbur Ross and the U.S. Securities and Exchange Commission failed to restore confidence in the $330 billion auction-rate bond market, as borrowing costs for states and municipalities rose.

Auctions for borrowers from San Francisco to Houston were unsuccessful even after Gross, who runs the world's biggest bond fund, and Ross, who invests in distressed companies, said they were buying municipal debt to take advantage of rising yields. Thirty-year tax-exempt yields rose 6 basis points to 4.89 percent after falling 18 basis points last week from a three-year high of 5.01 percent, Municipal Market Advisors data show.

More than 67 percent of auctions failed this week, based on data compiled by Bloomberg. The market became unhinged last month, after dealers who supported the securities for more than two decades stopped bidding for bonds investors didn't want. Auction rates jumped to 6.73 percent this month from an average 3.94 percent in the previous year, the Securities Industry and Financial Markets Association said.

``Nobody is giving me any inkling that it's getting any better,'' said Arnold Goldner, a 56-year-old owner of a jewelry repair business in Fort Lauderdale, Florida. Goldner said he hasn't been able to sell $5 million in auction-rate preferred bonds sold by closed-end funds from Nuveen Investments Inc. and BlackRock Inc., which borrow in the market alongside cities, hospitals, colleges and student lenders.