On Thursday, a small municipal bond deal for a Michigan county was postponed due to “lack of investor interest.” This is unusual, given the yield premium offered on the bonds. The Wall Street Journal has the story:
In the most tangible sign of fallout from Detroit’s bankruptcy filing, a Michigan municipality postponed a $53 million bond sale as investors blanched at the offered terms.
The Genesee offering didn’t attract enough buyers at a yield of 5.34 percent on a 29-year bond, the longest in the deal, according to people familiar with the offering. The average yield on a comparable 29-year municipal bond is 4.91 percent as of Thursday, according to Thomson Reuters Municipal Market Data.
The 43 basis-point extra yield on the deal seems to be a nice premium for the uncertainty that surrounds Michigan’s bonds in light of Detroit’s bankruptcy filing. But investors remained on the sidelines. It begs the question of whether we are seeing a new round of bond vigilantes. The traditional definition for a bond vigilante is:
A bond market investor who protests monetary or fiscal policies they consider inflationary by selling bonds, thus increasing yields.