Brian Chappatta, Columnist

Bondholders Should Never Think They’re Above Taxpayers

A retail project in Missouri shows that state and local officials aren’t going to side with Wall Street if they have an option.

June 4, 2019 at 9:00 AM UTC

By Brian Chappatta

Brian Chappatta is managing editor of Bloomberg News' leveraged finance and distressed debt teams. He was previously managing editor and team leader of its wealth group. Before that he was a Bloomberg Opinion markets and finance columnist and a bonds reporter for Bloomberg News.

A lower credit rating is better than angry constituents.
Photographer: Emmanuel Dunand/AFP/Getty Images

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I don’t know what bondholders expected.

The $3.8 trillion U.S. municipal-debt market is scattered with so-called appropriation bonds. State and local governments large and small issue these securities with every intention to make good on them — in fact, they’re sometimes referred to as “moral obligations.” It’s not quite as strong as a general-obligation pledge or debt tied to a specific revenue stream. But in almost every case, investors get paid back in full plus some extra yield for what’s seen as little-to-no added risk.