New York City’s bonds have suddenly become a hot topic on Wall Street — and you can thank socialist Mayor Zohran Mamdani for this certifiably bizarre development.
This past week, the Big Apple went to investors to sell billions of dollars in municipal debt.
With Mamdani doing his best imitation of Fidel Castro, the city sold $2.3 billion — $300 million less than it had targeted.
Mind you, I’ve been covering NYC bond deals for decades.
For the most part, they’ve been what you might call boring — in a good way.
Even back under Mayor David Dinkins, when the city was reeling from the aftershocks of the 1987 stock market crash — not to mention Dinkins’ own spending largesse — the city’s bond sales remained mostly strong.
Once the fiscal crisis of the 1970s and our near-default subsided in the minds of investors, NYC bond issues have frequently been “oversubscribed,” which in Wall Street lingo means there are more buyers than bonds available at auction.
That’s because of the heavy city and state tax burden and how city debt provides significant yields that are triple tax-free, and not least, the protections provided by something called the Financial Emergency Act of 1975, the state law designed to make sure that what went down in the 1970s never happens again.
The fact that the city had to scale back the latest bond issue because of the weakened demand indicates a particular investor animus to what Mamdani is doing, according to well-placed investors.
One broker who deals with super-rich people looking for tax breaks in municipal debt says many of his clients are staying away from NYC debt — simply because they don’t trust Mamdani.
“I’ve had clients that are selling them and others who don’t want to own them,” he said.
“That’s unusual because taxes might be going up. I don’t think they’re going to default, but it’s been difficult to make the sale.”
You wouldn’t know any of this based on the spin from the city and its bond underwriters on Wall Street.
Given the trauma the Iran conflict has produced in global markets, particularly the bond market off of which NYC debt is priced, the sale went swimmingly, they claimed.
Signal of confidence?
The “steady demand for the City’s municipal bonds in the face of market volatility is a clear signal of confidence from investors who know that our credit is strong,” city Comptroller Mark Levine said in a statement, according to Bloomberg.
(A City Hall rep didn’t return a request for comment.)
Reality check: First, the city paid higher interest rates on those bonds than it did not too long ago, meaning it’s getting increasingly expensive to sell debt, when it used to be a cakewalk.
Recall that the state fiscal-crisis law, which provided significant safeguards for city bonds in good times and bad, was created when bankruptcy was looming and NYC couldn’t sell bonds for infrastructure; and cops were being laid off as were city workers.
The Emergency Act created a mechanism where investors wouldn’t be afraid to buy our debt because they received first dibs on city tax revenues.
That’s one reason Mamdani, for all his self-inflicted governing nuttiness, is still able to tap Wall Street when he needs to.
If you believe the city will never default given the above, its bonds might seem like a good place to park money.
During times of fiscal distress when yields (their implied interest rates) rise and prices fall, you can make a few bucks rolling the dice on Mamdani.
But that gamble is growing increasingly dicey now that we have an avowed socialist for a mayor with plans to tax and spend the city into oblivion.
It’s also why rating agencies that grade city debt are increasingly worried that Mamdani’s budgeting won’t work.
Three agencies recently revised their outlook on the city’s debt to “negative” from “stable.”
And it’s why even the city comptroller is worried about Mamdani’s decision to raid rainy-day funds to try to get a balanced budget, which he must under the Financial Emergency Act.
If he ends the year with a deficit of just $100 million, Mamdani faces a state takeover of the city’s finances.
In other words, the city will be run out of Albany.
Mamdani wants to raise taxes, but a growing chorus of Dems, the governor included, know it’s like pushing on a string; people leave, as they have been doing, meaning there are fewer taxpayers to tax while the welfare rolls grow.
Then there’s the obvious incompetence coming from City Hall. It projected a 15% increase in Wall Street bonuses to pay for the mayor’s $127 billion budget but instead bonuses grew 9% from 2024.
With the likes of JPMorgan and Goldman Sachs doing more hiring in places like Texas (which has no income tax) and low-taxed Utah, you can see how even that healthy increase will decline in the budget cycles ahead.
Put it all together and you can say there were buyers of city debt, but the reality is they’re demanding more for their money because they’re getting nervous — which they have every right to be.
Credit: Source link
