Mayor Zohran Mamdani’s luck in the municipal bond market appears to be running out, On The Money has learned.
After stabilizing or increasing a bit in the last couple of months, prices of New York City municipal bonds this month took a hit, with the “yield” – or return demanded by investors to compensate for various types of risk – spiking noticeably between July 3 and July 10, the latest available numbers show.
The yield on a 10-year GO bond jumped to 3.34% from 3.28%, while the yield on a 10-year bond from what’s known as the “transitional finance authority” jumped 10 basis points – or hundredths of a percentage point, in bond-market speak – to 3.26%.
Note that bond prices move in the opposite direction of yields. That’s because when people bail on any form of debt, you need a higher yield to attract new buyers.
Both GOs and so-called TFA bonds are the main ways that the city finances billions of dollars of capital improvements, roads, bridges, various infrastructure needs. They’re the lifeblood of the city’s economy. Given the city’s size, its various capital needs make it among the top issuers of municipal debt in the country.
Its debt load is around $125 billion. Roads keep needing repairs, so city officials need to keep finding buyers. The unusually high taxes here help with that since municipal bond returns are triple tax free for city residents.
But other factors often come into play, such as the level of interest rates and, of course, if the city will be ultimately able to make good on its obligations. On that last point, investors are starting to have their doubts with Mamdani in charge, Wall Street salesmen tell me.
Thus, the markdowns we’re starting to see on what should normally be debt that attacks constant investor interest.
What’s particularly striking about the prices and yields is the sudden change in direction. Despite Mamdani’s intentions to to turn the Big Apple into a socialist state, investors had been in a glass-half-full mode; city debt has actually been quite stable since the end of May with yields falling a bit, and prices rising a smidge after an initial steep decline just after Mamdani took office.
One reason for recent optimism may be the fact that Mamdani – who by law must balance the city’s budget under Generally Accepted Accounting Principles — did exactly that. His first fiscal year budget, a $126 billion monstrosity of spending and taxing, was aided by a bailout from Albany plus a pension-fund gimmick and his pied a terre tax, not to mention low expectations. But it was balanced, nonetheless.
Now, reality might be setting in with investors. Our boy-mayor who is now learning how to govern after a brief stint in the state assembly and a career as a rapper, is continuing to demand ever-larger tax increases to pay for yet more socialism.
People are leaving. A recent Citizens Budget Commission study showed that even before he came to office promising the “warmth of collectivism” on the backs of taxpayers, the millionaires – who pay most of the city’s taxes – were fleeing.
Wall Street is booming of course, just see record bank earnings this week coming out of the likes of Bank Of America, JPMorgan Chase and Goldman Sachs. But more and more of Wall Street is leaving as well, as evidenced by JPMorgan having fewer employees here than in the low-tax, business friendly state of Texas.
Mamdani will eventually run out of other people’s money to spend, increasing the likelihood of default, which is why investors might now be seeing the glass as increasingly half-empty.