Bankrupt Cities

Municipal Bond Investors Get Jitters From Detroit Bankruptcy

Maybe not a great place to park your cash


As if rising interest rates weren't upsetting enough to individuals losing money in municipal bond funds, Detroit's bankruptcy has now intensified the sense of insecurity over munis.

When Detroit filed for Chapter 9 bankruptcy last week, it disrupted the tranquillity that attracts many risk-averse individuals to the $3.7 trillion municipal bond market.

Detroit is one of the few U.S. cities to file for bankruptcy and by far the largest. And with Detroit's move to avoid paying some of its debts, investors are forced to question whether they can rely on cities and other local governments that promise to do whatever it takes to pay every investor who purchases what are known as general obligation municipal bonds.