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Detroit's Bankruptcy Doesn't Faze the Municipal Bond Market

Fallout from a record bankruptcy has been almost nil
Detroit's Bankruptcy Doesn't Faze the Municipal Bond Market
Photograph by Jeff Kowalsky/Bloomberg

Strange as it may seem, Detroit’s bankruptcy filing—the biggest ever for a U.S. city—doesn’t appear to have unnerved the $3.7 trillion U.S. municipal bond market. Tom Hamilton, finance director of Norwalk, Conn., had no trouble finding buyers for $21 million in general obligation bonds on Aug. 1. Localities from Washington State to Alabama to Massachusetts planned to sell $8.6 billion in debt during the first full week of August, the most since April.

The momentum defies predictions that the muni market would go into a deep freeze following the Motor City’s financial collapse and Detroit Emergency Manager Kevyn Orr’s plan to impose losses on some bondholders. “There’s not a lot of evidence to show this has been the death knell for GO [general obligation] bonds,” says Craig Pernick, senior managing director at Chevy Chase Trust, which oversees about $1.1 billion in munis.