Word: bondses
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The plan worked splendidly as long as interest rates continued to fall; that increased the value of the bonds, which move in the opposite direction of interest rates. Throughout the 1980s the Orange County fund raked in returns of more than 9% a year, or nearly double the average earnings...
But as interest rates rose this year, the value of the bonds that Citron had bought began to tumble. To make matters worse, the Orange County portfolio held $8.5 billion of derivatives, including an exotic type called inverse floaters, whose value also plunged as interest rates climbed higher. Yet Citron...
The end came last Tuesday, one day after Citron resigned and CS First Boston demanded immediate repayment of a $1.2 billion loan that the treasurer had used to buy bonds. County supervisor Harriett Wieder awoke before dawn to the sound of a police officer pounding on her door and summoning...
In the frantic days that followed, Orange County authorities strove to reassure residents that life after the bankruptcy filing would go on as usual. Officials said the filing would have "no impact" on county police, fire and paramedic services and noted that a $2 billion emergency loan from Merrill Lynch...
The aftermath of the bankruptcy filing soon led to finger pointing. Holders of Orange County municipal bonds sued county officials as well as Merrill Lynch and Smith Barney, claiming the firms had concealed "reckless investment practices." Not to be outdone, the county sued Nomura Securities for ignoring the bankruptcy filing...