Bloomberg
Junk Munis See Best Run Since 2009 With Pandemic Panic a Memory
While the economic slowdown has left states and cities contending with massive budget shortfalls, the market is factoring in little risk, driving yields back to the lowest in more than six decades. That’s in part because governments have broad latitude to raise taxes and cut spending, minimizing the odds of default.
But there are signs of mounting distress in the riskiest corner of the municipal market, where speculative projects like nursing homes, factories and tourist attractions are often financed. This year, at least 104 borrowers have skipped debt payments, violated financial clauses in their contracts or drawn on emergency funds to cover what they owe, the most since 2012, according to Municipal Market Analytics.
Yet the $4 billion of bonds that have defaulted still represent a small fraction of the $3.9 trillion municipal market, underscoring the extent to which it acts as a haven during times of economic stress.