Following Standard & Poor’s downgrade of New Jersey bonds earlier this year, Moody’s has lowered it’s rating from Aa2 to Aa3.
According to Alan Schankel, director of fixed income research at financial services firm Janney Montgomery Scott, the downgrade was fueled by the state’s continuing problems over its pension funding and its high debt load.
“I think this has been anticipated — it didn’t just happen this week, or even in January,” Schankel said. “If you look over the last few months, New Jersey’s average interest rates on bonds have risen relevant to other states.”
Schankel also said while Moody’s and S&P continue to keep a stable outlook for the state, a third agency, Fitch, downgraded New Jersey’s outlook Wednesday to negative, indicating they believe there is more bad news down the line.
“I don’t think there will be a reduction in lending — I think there could be additional marginal effects, investors who will want a little higher rate or they won’t buy it next week where they might have bought a bond last week,” Schankel said. “I don’t (think) New Jersey is in any danger of being shut out of markets or being significantly restricted; they’re still a well-regarded name, and that will continue. It’s not a disaster kind of thing; it’s kind of a trickle of a problem.”
Local bonds and New Jersey Building and New Jersey Transit trusts were also affected by the downgrade, as they are backed by the state bonds. Shankel added that any delay in school construction or long-term projects would be a result of reduced funding, not the increased bond interest rates.
And while the reduction of public jobs in the state is a leading cause of New Jersey’s high unemployment rate, a factor in the downgrade, Schankel said he believes Gov. Chris Christie’s budget-cutting measures will have a positive, if delayed, impact on the state’s debt rating.
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