1st Minn. bond sale since downgrade opens

Minnesota goes to the bond market Tuesday morning to ask investors to lend the state money for various capital projects. The nearly $1 billion bond sale is the first to follow the state's latest credit downgrade.

Last week, Standard & Poor's joined Moody's Investors Service and Fitch Ratings when it knocked the state's sterling AAA grade down a notch. Darci Doneff, managing director of fixed income services with Piper Jaffray in Minneapolis, estimates the latest downgrade will add to the state's financing costs, but she says interest rates are at historic lows these days.

"It is an issuer's dream to be able to borrow at these interest rates, I would say," she said. Doneff, and there's strong demand for bonds in Minnesota because state residents who own them don't have to pay tax on the income earned from them.

Shawn O'Leary, a senior research analyst at Nuveen Asset Management, says credit downgrades don't seem to be hurting states much these days. They're still able to borrow money through their bond sales at low interest rates.

"Generally, municipal rates have been grinding lower, which implies higher bond prices and a move to safety," O'Leary said. "So the municipal market remains a source of relative safety among all asset classes." O'Leary says ups and downs in the stock market have made the bond market extra attractive recently.

The state's bond sale starts around 9:30 a.m.