Detroit Default Ripples Through Municipal Bond Market

"Two weeks after Detroit declared bankruptcy, cities, counties and other local governments in Michigan are getting a cold shoulder in the municipal bond market," reports Mary Williams Walsh. 

"Detroit’s bankruptcy, the largest ever by a municipality, has raised fundamental concerns about the safety and security of municipal bonds, certainly in Michigan but potentially elsewhere in the country, too," she adds. "The municipal bond market appears to be sending Michigan’s cities a message that no matter how well rated they are, they are going to have to postpone their plans and projects or pay more for them."

"Putting a city’s 'full faith, credit and taxing power' behind a bond no longer means what it did in the past, anywhere in the state, critics say. The governor and Mr. Orr have said they are not concerned about the effect of the bankruptcy plan on the municipal bond market as a whole. But other participants find their treatment of indebtedness profoundly disturbing, and their anxiety has spilled over to other Michigan municipalities."