Moody’s expects defaults and distress in the $3,000bn US municipal bond markets but does not anticipate a broad “crisis of confidence”, says the credit rating agency’s chief executive.
“There may be additional defaults in the municipal sector. There certainly is going to be distress in the municipal sector,” said Raymond McDaniel, chairman and chief executive of Moody’s, in an interview. “But we differentiate that from a broad-based systemic problem.”
Increased scrutiny of the municipal bond markets, in which US states, cities and other public sector borrowers raise money, takes place as investors take a broader look at risks in sectors once seen as “safe”. The eurozone debt crisis emphasised that even government debts carry credit risks. Mr McDaniel said the emergence of credit problems in bond sectors “traditionally viewed as a safe haven” had potential for confidence problems – with effects for the broader system.