Municipal bonds
Lending to a city, county, or school district. Tax-advantaged, locally political, and not as safe as the reputation suggests.
The invention
The problem. Cities needed canals, water systems, and schools that would serve generations not yet born.
New York issued the first American municipal bond to fund a canal. The logic is elegant — infrastructure lasting fifty years should be paid for over fifty years by the people who use it. The complication is that the borrower also decides whether repaying is politically survivable.
An Egyptian Peasant Woman and Her Child
1869–70 · The Metropolitan Museum of Art · CC0
Where it has failed
Not a list of disasters. A pattern library.
- 1975New York City
Ford to City: Drop Dead
New York came within hours of default; federal help arrived only after severe austerity conditions.
Municipal support is discretionary and political. The backstop is a decision, not a rule.
- 2013Detroit
The largest municipal bankruptcy
$18bn in obligations restructured; both bondholders and pensioners took losses.
A tax base can leave. Unlike a sovereign, a city cannot print and cannot stop residents from moving.
- 2016Puerto Rico
Territory default
Roughly $70bn of debt, much of it held by retail investors attracted by triple tax exemption.
Tax advantages attract buyers who are not pricing the risk. The yield was compensation for something.
Where it stands today
You now have the shape. Here is the reading.
Live from public data, pulled at request time. Read it with the failures above in mind — not because a repeat is due, but because knowing the mechanism is what lets you recognise one early.
Treasury average interest rate
U.S. Department of the Treasury
3.71%
Jun 30 · +12.2% y/y
In your ledger
Held for the tax exemption, often by people near retirement. Puerto Rico is the case study in what that exemption was compensating for.
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