“The move is clearly a tragedy for Detroit residents, workers and retirees. Many will see their health-care and pension benefits slashed. But, ultimately, Detroit felt it had no choice to get out from under its crushing burden. But what about the broader implications? What does this mean for the $3.7 trillion municipal-bond market? Well, many market pundits will claim Detroit is an isolated case. Many bond-fund managers will try to downplay the significance of this. Do not fall for it. First, Detroit is far from alone. While it is certainly the largest municipality to go broke, the city is just the latest in a long line of troubled municipal borrowers to tumble into bankruptcy.”
