Bond Default Update For The Municipal Bond Market
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With the end of Covid restrictions and normalization of the economy, municipal defaults for 2023 have shown a marked decline and will likely end the year with the lowest default rate in a decade. Of course, this assumes that current Federal Reserve monetary policy does not drive interest rates substantially higher or create a recession or that government climate policies don’t drive more industries into default or that more green bond issues don’t turn red. Pretty simple really. Here are the numbers:

Defaulted 2019 2020 2021 2022 2023 YTD # Defaults 32 68 47 27 6

$(Millions) 1,232 4,404 1,767 1,456 196


# Defaults 12 39 32 10 7

$(Millions) 337 3,439 1,375 777 188

The effect of Covid in 2020 is undeniable. An accompanying article goes into depth on this effect in 2020-21 demonstrating the various sectors which would be vulnerable to a pandemic. The results in 2022-23 would also benefit from the decline in new projects during the Covid lockdowns and the fact that many project defaults were brought forward to 2020-21, projects that found the lockdowns a convenient excuse to negotiate standstill agreements with bondholders despite their woes being unrelated or self-inflicted. This will mean that future defaults among previously distressed issues will be higher as bondholders discover reality.

As we note in another report today, the actual default picture for 2023 has stabilized at pre-covid levels. The greater default risk going forward is losses stemming from government supported green bond projects as well as energy related companies or projects which are being negatively impacted by the environmental politics of today. Another risk going forward is that interest rates have risen such that opportunities for refinancing a troubled project through lower interest rates have declined.

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