Hawaii municipal bonds take a plunge

Hawaii state and local municipal bonds have surrendered all their 2023 gains in the past three weeks after the deadly Maui wildfires delivered a fresh reminder of climate risk in the $4 trillion market for state and local debt.

An index comprised of Hawaiian municipal securities has dropped 2.81% in August, the worst performance of any state and compared with a 1.8% loss for the broader market, according to data compiled by Bloom­berg. Hawaii is one of only four states to post a negative performance this year. At the end of July, its municipal bonds were sporting a more than 2% gain for 2023.

“The Hawaii index was impacted by the large drop of bonds associated with the Maui catastrophe,” said Tom Doe, president and founder of Municipal Market Analytics.

Municipal bonds guaranteed by Hawaiian Electric Co. Inc, the utility under scrutiny for its possible role in the fires, had plunged as much as 40%, according to data compiled by Bloomberg.

Doe said that drop and the subsequent impact on the broader state index “exemplifies how reactive rather than proactive the market behaves relative to climate risks.”

Climate risk has become increasingly prevalent in the municipal bond market, where states and cities raise money for infrastructure projects like schools, roads and bridges. The debt can often mature in decades, raising the risk that certain certain geographies become more susceptible to extreme weather events.