Not surprisingly, the outliers steal the spotlight. “Zooming in on the weakest links is downright scary,” the Whitney article says, pointing to Connecticut, Illinois and New Jersey. It’s true that those states have real problems and politicians can no longer employ the tried-and-true method of passing the burden to their successors. But the death knell isn’t necessarily higher interest rates, as the article describes. In fact, for pension funds, which invest a healthy amount in fixed income, a return to historically normal yield levels should provide a source of safe returns that was absent for much of the post-crisis era.
It’s fair to ask whether some states and cities are prepared to withstand another deep recession. Or whether 177 basis points of extra yield is enough to compensate for the risk of owning Illinois debt versus top-rated munis. But it’s simply revisionist history to say Whitney was right all along with her 2010 call, which ignited a bout of panic in the municipal market about events that never materialized. The truth is, she whiffed.
Brian Chappatta is a Bloomberg Opinion columnist covering debt markets. He previously covered bonds for Bloomberg News. He is also a CFA charterholder.