U.S. Investors Fear Muni Defaults, Job Losses

Inquiring minds are looking at the findings of a Reuters poll published Sunday that found a majority of Wall Street professionals (including municipal bond traders and investors) believe up to four multibillion-dollar municipal bond defaults will take place this year. They also think some of the United States’ weakest local governments face a real risk of default in 2011 as well as waves of layoffs that could put upward pressure on the country’s jobless rate, according to the poll:

Among the investors polled, 19 of 23 thought job cuts aimed at bringing budgets into line would put noticeable upward pressure on the national unemployment rate, which over the past two months has fallen sharply to 9.0 percent from 9.8 percent.

Ten of those surveyed saw the jobless rate increasing more than 0.5 percentage point and three believed the impact would be over a full percentage point — a rise that could potentially be associated with hundreds of thousands of job losses.

“If the states fire the employees necessary to cut their budgets, unemployment will get worse,” said Marilyn Cohen, president of Envision Capital Management in Los Angeles.

Not even President Obama used the 9.0% unemployment number from last month, yet Reuters does? Wow, can you say, “In the tank for the President”?


While few municipal market analysts think any state will default on its debt — in part because states cannot legally file for bankruptcy — there are intense concerns about the shaky finances at some big U.S. cities.

Last March, for example, Detroit laid out bankruptcy risks in a debt offering statement. The city, which is rated in the junk category by Standard & Poor’s and Moody’s Investors Service — and has not sold general obligation debt since — said in the bond document it did not envision a bankruptcy filing.

“A credit like Detroit with limited liquidity and sizable debt could file bankruptcy in 2011, but only if politics goes against it and the state allows the filing to take place,” said Richard Ciccarone, head of municipal bond research at McDonnell Investment Management in Oakbrook, Illinois.

But, hey! Let the good times roll because we have been out of the recession for what? 18 months now?


One Response

  1. i don’t believe that unemployment has fallen to 9%.
    i do believe that some unemployed have had their benefits ended, thus taken off the fed. gov’t rolls.
    thereby giving the perception that unemployment has dropped.

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