Executive Summary July 17, 2015 The Revenue Estimating Conference adopted interest rates for use in the state budgeting process. The adopted interest rates take into consideration current benchmark rates and recent market volatility. The long term interest rate is used for bond issues with maturity structures of 20 years or more. The long term interest rate was reduced by 25 basis points from the November 2014 adopted rate of 5.25% to 5.00%. The adopted rate of 5.00% reflects current market conditions, and is based on the benchmark rate of 4.00% plus a spread of 100 basis points. The current benchmark rate for 30 year bonds is the same as it was in November 2014, but the market has been slightly less volatile over the most recent 12 months, resulting in relatively tighter spreads to the benchmark rate. The 2014 conference long term rate reflected a benchmark rate of 4.00% and a 125 basis point spread. Long Term Interest Rate Fiscal Year 2015 16 2016 17 2017 18 2018 19 2019 20 2020 21 Interest Rate 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% The short term (or variable) interest rate remains unchanged from the prior forecast at 2.00%. The average short term interest rate over the past 12 months was 0.12% and the volatility spread was between 150 and 200 basis points. Interest rates used for calculating Public Education Capital Outlay (PECO) bonding capacity are determined separately.
Division of Bond Finance Interest Rate Calculations Economic Estimating Conference July 17, 2015
Division of Bond Finance Long Term Interest Rate Information* Calculation of Long Term Interest Rate Current Long Term Interest Rate 1 4.00% 4.00% Plus: Volatility Spread 2 0.75% 0.95% Long Term Interest Rate Range: 4.75% to 4.95% 1 Current general obligation issue interest rate estimated at 4.00% for a 30 year issue based on current yields and credit spreads. 2 Uses Bond Buyer 11 GO Bond interest rate volatility of 75 bps since Fiscal Year 1995 and current interest rate volatility from the previous 12 months of approximately 95 bps. Long Term Interest Rate Recommendation: Despite the interest rate range noted above, which is based on the Division of Bond Finance s historical methodology that analyzes interest rate trends and volatility over the past 12 month period, the Division would recommend maintaining the current long term interest rate for appropriation purposes set at 5.25% as we are concerned long term interest rates will ultimately move higher in the next 12 months due to the following: Potential Federal Reserve moves that increase interest rates as early as September 2015; Ongoing volatility in Europe, that cause substantial daily swings in the U.S. Treasury market; and Inconsistent economic data that create uncertainty in the financial markets relative to inflation, wage growth and the sustainability of the housing and manufacturing recovery. Short Term Interest Rate Recommendation* Calculation of Short Term Interest Rate Average Everglades Rate Past Twelve Months 0.12% 0.12% Plus: Volatility Spread 3 1.50% 2.00% Total 1.62% 2.12% Recommended Short Term Interest Rate Range for FY 2015 16: 1.60% to 2.10% 3 Uses the volatility from 20 year change in SIFMA rates of between 150 bps and 200 bps. * The Division of Bond Finance has supplied the above interest rates to assist the REC in adopting official rates that would be used by state agencies for planning and budgetary purposes for Fiscal Year 2015 16, except for PECO interest rates which are adopted through a separate process. There can be no assurance that actual interest rates for any particular bond issue will not exceed the rates shown above. Prepared by the Division of Bond Finance 7/10/2015
Change in Bond Buyer 11 GO Bond Average Annual Interest Rates Year to Year Fiscal Year 1995 through 2015 Avg. Fiscal Year 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 All Years BB 11 GO Average 6.20% 5.69% 5.63% 5.18% 5.02% 5.75% 5.30% 5.09% 4.72% 4.70% 4.42% 4.37% 4.24% 4.49% 4.79% 4.09% 4.30% 3.71% 3.52% 4.27% 3.65% 4.72% Change from Prior Year 0.67% (0.52)% (0.06)% (0.45)% (0.16)% 0.74% (0.46)% (0.21)% (0.37)% (0.01)% (0.28)% (0.05)% (0.13)% 0.25% 0.30% (0.71)% 0.21% (0.59)% (0.19)% 0.75% (0.62)% (0.09)% 6.50% 6.00% 5.50% 5.00% 4.50% 4.00% 3.50% 3.00% 2.50% 2.00% 1.50% 1.00% 0.50% 0.00% 6.20% 5.69% 5.63% 5.18% 5.02% Annual Bond Buyer 11 GO Bond Average Interest Rate Index Fiscal Years 1995 through 2015 5.75% 5.30% 5.09% 4.72% 4.70% 4.42% 4.37% 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 4.24% 4.49% 4.79% 4.09% 4.30% 3.71% 3.52% 4.27% 3.65% The maximum change in the Bond Buyer 11 Bond Index over the last 20 fiscal years is approximately 75 bps Prepared by the Division of Bond Finance 7/10/2015
Histrorical MMD AAA Constant Maturity Yields 06/25/2014 through 06/24/2015 4.00% 3.50% 3.00% 2.50% 2.00% 1.50% 1.00% 0.50% 0.00% 10 Year maturity 20 Year maturity 30 Year maturity The maximum change in the MMD AAA interest rates over the past 12 months is approximately 95 bps
Change in SIFMA Average Annual Interest Rates Year to Year Fiscal Year 1995 through 2015 Avg. Fiscal Year 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 All Years SIFMA Average 3.58% 3.62% 3.54% 3.62% 3.21% 3.76% 3.73% 1.67% 1.26% 0.98% 1.86% 3.00% 3.62% 2.89% 1.39% 0.28% 0.25% 0.15% 0.14% 0.06% 0.05% 2.03% Change from Prior Year 1.14% 0.04% (0.08)% 0.08% (0.41)% 0.55% (0.02)% (2.06)% (0.42)% (0.28)% 0.88% 1.14% 0.62% (0.74)% (1.49)% (1.12)% (0.03)% (0.10)% (0.01)% (0.08)% (0.01)% (0.11)% Annual SIFMA Average Index Fiscal Years 1995 through 2015 4.00% 3.50% 3.00% 3.58% 3.62% 3.54% 3.62% 3.21% 3.76% 3.73% 3.00% 3.62% 2.89% 2.50% 2.00% 1.67% 1.86% 1.50% 1.00% 1.26% 0.98% 1.39% 0.50% 0.00% 0.28% 0.25% 0.15% 0.14% 0.06% 0.05% 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 The maximum change in the SIFMA Index over the last 20 fiscal years is approximately 200 bps
Division of Bond Finance Calculation of Short Term Interest Rate Average Everglades Bonds Variable Rate Past 12 Months Date Rate 6/25/2014 0.14 7/2/2014 0.14 7/9/2014 0.11 7/16/2014 0.11 7/23/2014 0.12 7/30/2014 0.11 8/6/2014 0.10 8/13/2014 0.10 8/20/2014 0.09 8/27/2014 0.09 9/3/2014 0.08 9/10/2014 0.08 9/17/2014 0.08 9/24/2014 0.08 10/1/2014 0.07 10/8/2014 0.07 10/15/2014 0.07 10/22/2014 0.06 10/29/2014 0.07 11/5/2014 0.06 11/12/2014 0.07 11/19/2014 0.07 11/26/2014 0.06 12/3/2014 0.05 12/10/2014 0.06 12/17/2014 0.08 12/24/2014 0.10 12/31/2014 0.12 1/7/2015 0.10 1/14/2015 0.10 1/21/2015 0.10 1/28/2015 0.08 2/4/2015 0.07 2/11/2015 0.08 2/18/2015 0.09 2/25/2015 0.09 3/4/2015 0.08 3/11/2015 0.08 3/18/2015 0.08 3/25/2015 0.08 4/1/2015 0.09 4/8/2015 0.09 4/15/2015 0.12 4/22/2015 0.16 4/29/2015 0.17 5/6/2015 0.20 5/13/2015 0.25 5/20/2015 0.28 5/27/2015 0.28 6/3/2015 0.33 6/10/2015 0.34 6/17/2015 0.34 6/24/2015 0.33 12 month Average: 0.12 0.12 Plus: volatility spread 1.50 2.00 1.62% 2.12% Recommendation: 1.60% to 2.10%
0.00 0.20 0.40 0.60 0.80 1.00 1.20 1.40 1.60 1.80 2.00 2.20 2.40 2.60 2.80 3.00 3.20 3.40 3.60 3.80 4.00 4.20 4.40 4.60 4.80 5.00 5.20 5.40 5.60 5.80 6.00 6.20 6.40 6.60 6.80 7.00 7.20 7.40 7.60 7.80 8.00 8.20 19-Dec-07 19-Jan-08 19-Feb-08 19-Mar-08 19-Apr-08 19-May-08 19-Jun-08 19-Jul-08 19-Aug-08 19-Sep-08 19-Oct-08 19-Nov-08 19-Dec-08 19-Jan-09 19-Feb-09 19-Mar-09 19-Apr-09 19-May-09 19-Jun-09 19-Jul-09 19-Aug-09 19-Sep-09 19-Oct-09 19-Nov-09 19-Dec-09 19-Jan-10 19-Feb-10 19-Mar-10 19-Apr-10 19-May-10 19-Jun-10 19-Jul-10 19-Aug-10 19-Sep-10 19-Oct-10 19-Nov-10 19-Dec-10 19-Jan-11 19-Feb-11 19-Mar-11 19-Apr-11 19-May-11 19-Jun-11 19-Jul-11 19-Aug-11 19-Sep-11 19-Oct-11 19-Nov-11 19-Dec-11 19-Jan-12 19-Feb-12 19-Mar-12 19-Apr-12 19-May-12 19-Jun-12 19-Jul-12 19-Aug-12 19-Sep-12 19-Oct-12 19-Nov-12 19-Dec-12 19-Jan-13 19-Feb-13 19-Mar-13 19-Apr-13 19-May-13 19-Jun-13 19-Jul-13 19-Aug-13 19-Sep-13 19-Oct-13 19-Nov-13 19-Dec-13 19-Jan-14 19-Feb-14 19-Mar-14 19-Apr-14 19-May-14 19-Jun-14 19-Jul-14 19-Aug-14 19-Sep-14 19-Oct-14 19-Nov-14 19-Dec-14 19-Jan-15 19-Feb-15 19-Mar-15 19-Apr-15 19-May-15 19-Jun-15 Everglades Series 2007A-B Variable Rate Bonds Tracking SIFMA Citigroup Re-set Rates Goldman Re-set Rates