A low hum of anxiety has surrounded the issue of public pensions in the U.S. municipal bond market for years, The Financial Times reported today. Now, that hum is getting louder. The third largest city in the U.S. became a junk rated issuer when Moody’s last week cut Chicago’s credit ratings on concerns about its unfunded pension liabilities. The downgrade is the latest in a string of high-profile instances of pension woes spilling into the bond market at a time when investors, rating agencies and rule-making bodies are scrutinizing pensions. Pensions have been increasingly thrust into the spotlight, having become a significant factor in the most widely watched municipal distress stories. Governments have been poor managers of their pensions for some time, but the financial crisis and ensuing recession lifted the veil on chronic underfunding and rosy return expectations. Stock market declines deepened unfunded liabilities considerably while states, cash-strapped by the economic downturn, had less money to plug the gaps.
