Muni Bond Market Throwdown: How Bad Could Defaults Get?
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Muni Bond Market Throwdown: How Bad Could Defaults Get?
By Louis Lanzano
Star banking analyst Meredith Whitney has been saying for months that the next phase of the housing meltdown would be a local-government financial crisis. Last weekend she put a number on it, asserting that “hundreds of billions of dollars” of municipal bond debt would end up in default.
Whitney, appearing on CBS’ “60 Minutes,” was interviewed on correspondent Steve Kroft’s segment on the “day of reckoning” for municipal finances.
Given the pounding that the tax-free muni market has taken since late October, driving bond prices down and yields up, Whitney’s comments were a bond salesman’s worst nightmare. The segment aired just after the muni market seemed to be stabilizing late last week.
So far this week the market has remained relatively calm, although a report Wednesday from the mutual fund industry’s trade group showed that muni fund redemptions jumped in the seven days ended Dec. 15 as more investors opted to cash out.
