This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Muni Market Faces Aftermath of Detroit Bankruptcy

By Hal M. Bundrick

NEW YORK ( MainStreet)--The Motor City blew an engine, hit a wall and, with parts flying, made a quick pit stop last week as the city of Detroit filed for bankruptcy, the largest in U.S. history. Even though this was a slow-motion wreck long anticipated by industry analysts, how will the municipal bond market, already rocked by volatility and drastic losses in June - the largest correction in nearly ten years - react to recent events?

Muni pros seem unfazed.

"Detroit's Chapter 9 filing on July 18 came slightly sooner than expected, but in no way was a surprise to the market," write Peter Hayes and James Schwartz in a market report for BlackRock Municipal Bonds Group. "The city's problems, while long known to the municipal market, have had little bearing on it -- a scenario we expect will continue, even in the wake of the bankruptcy filing. For the broader municipal market, we do not anticipate a widespread systemic effect. The basic fundamental credit underpinnings of the municipal market remain very healthy and, in fact, are better than they were in 2008.",

Tom Kozlik, a muni market analyst with Janney Capital Markets, is equally stoic.

"It is very important that investors note that Detroit's recent action is not representative of overall credit conditions in the municipal market; however, pension obligations remain an issue that needs to be addressed in several situations," Kozlik says. "While we have a 'cautious' credit outlook on local governments, this outlook reflects the fact that we expect general credit deterioration that will likely result in rating downgrades to outpace upgrades. We do not expect this credit deterioration to result in a wide-spread use of Chapter 9."

Kozlik notes that Chapter 9 municipal bankruptcies are very rare, with an average of eight a year since 2007 -- in line with the long-term trend. "In addition, most of the filings have not been by local government entities, most are from the higher risk sectors of the municipal universe," he says. "We are not expecting the pace of local government Chapter 9 bankruptcies to rise significantly and we are not expecting a contagion effect to trigger additional occurrences among local government issuers as a result of Detroit's recent action."

1 of 2

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 18,053.71 +23.50 0.13%
S&P 500 2,088.77 +6.89 0.33%
NASDAQ 4,806.8590 +33.3870 0.70%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs