Detroit’s record bankruptcy filing isn’t derailing the $3.7 trillion U.S. municipal-bond market. Just ask Tom Hamilton, finance director of Norwalk, Connecticut.

The waterfront community about 50 miles (80 kilometers) from New York sold $21 million of general obligations Aug. 1 at a lower-than-expected interest rate to finance roads and a seawall damaged by Hurricane Sandy, said Hamilton, 53. Issuers from Massachusetts to Oregon joined Norwalk last week in offering debt backed by their full faith and credit. The sales defied speculation that such securities would suffer as a result of 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 G.O. bonds,” said Craig Pernick, senior managing director at Bethesda, Maryland-based Chevy Chase Trust Co., which oversees about $1.1 billion in munis. “They’ve held their own.”

In the eyes of investors nationwide, general obligations have only become safer since Detroit’s July 18 filing. The extra yield buyers demand to own revenue bonds instead of general obligations swelled to 0.96 percentage point July 24, the most since March 2012, Bank of America Merrill Lynch data show. That was up from a gap of 0.77 percentage point June 14, when Orr released his proposal to restructure Detroit’s debt.

Issuance Rebound

The municipal market has already withstood at least two threats since 2008. The financial crisis that began that year led to the collapse of the bond-insurance industry, which once backed more than half of all local debt. In December 2010, banking analyst Meredith Whitney’s incorrect prediction of “hundreds of billions of dollars” of municipal defaults in the following 12 months helped propel 29 straight weeks of investor withdrawals from muni mutual funds.

This year, even as interest rates reached the highest level since 2011, states and cities have sold about $189 billion of fixed-rate bonds, 10 percent off last year’s pace, data compiled by Bloomberg show. Localities from Washington to Alabama plan $8.6 billion in sales this week, the most since April.

Tax Backing

Orr’s plan to treat Detroit general obligations the same as retiree health benefits and pensions threatens what investors view as a basic tenet of the municipal market: that cities will raise taxes as high as needed to avoid default on such securities. He offered to repay holders of the debt about 20 cents on the dollar.

No municipality has used bankruptcy to force a cut in principal on general obligations.

First « 1 2 3 4 » Next