Professional scary person Meredith Whitney took to the op-ed pages of The Wall Street Journal this morning to sprinkle some more of her fear dust on the muni-bond market:
Municipal bond holders will experience their own form of contract renegotiation in the form of debt restructurings at the local level. These are just the facts.
She makes some good points, frankly, and offers some alarming numbers. State and local finances are plainly a mess, and off-balance sheet liabilities in the form of unfunded pension and other benefit obligations are a potential headache. That point is controversial, but it’s always important to listen to Cassandras like Ms. Whitney, who made her bones as a prognosticator before the financial crisis.
But, interestingly, muni-bond investors are not exactly heading for higher ground today on her words. Muni-bond ETFs such as the iShares S&P National AMT-Free Muni Bond fund, are basically unchanged on the day — at six-month highs.
Contrast that with last year, when Ms. Whitney’s warnings of multiple muni defaults contributed to a brutal selloff in muni debt.