Detroit sold its first general obligation (GO) bonds since exiting bankruptcy in 2014, lured back into the market to refund debt by near-record low interest rates and high demand from investors, Reuters reported today. The city's 10-year tax-exempt debt yielded 2.34 percent, or 0.92 of a percentage point higher than top-rated municipal bonds as measured by Municipal Market Data's (MMD) triple A scale. That was significantly better than when it sold revenue bonds nearly a year ago. The bonds are backed by state aid, so the sale is not solely a vote of confidence in the city's turnaround story since it exited bankruptcy in December 2014. Continuing caution over Detroit reflects concern that while the city is heading in the right direction its financial condition is still tenuous. Some fear the city could declare bankruptcy again, possibly within 10 years, with an even more painful outcome for investors than before. The city sold a total of $608.9 million in bonds, issuing $223.8 million in tax-exempt securities. Even though the deal is backed by state funds, tighter spreads highlight demand for tax-free debt and investors' "reach for yield" in the current near-record low interest rate environment.
