By: Hellen Zaboulani
Jerry Seinfeld and the bond market both lent a voice of confidence for New York City. Last week, a blogger wrote that the Big Apple is “Dead Forever.” Seinfeld, the Brooklyn born actor and comedian defended the city in an op-ed for the NY Times. As per a recent article by Bloomberg the bond market too has proved it believes in the city’s resilience, as evident by investor’s willingness to lend to the city.
To be sure, NYC has a heavy load of problems after being named the epicenter of the Coronavirus in March. Unemployment has jumped to 20%. Violent crimes and shooting are up. Over 420,000 residents left the city between March 1 and May 1, the NY Times estimated. The city’s revenue is already well below its budget, and there’s a risk it will drop even lower if NYC’s upper crust does not return.
Despite all this, last Wednesday, when the city sold when it sold $1 billion of bonds, there were surprisingly a flood of buyers. Scores of mutual funds, insurance companies and other institutional investors were ready to put their money in. The 10-year bonds yielded just 1.45%, which is a decent price and far from a cry of crisis. It was priced only a little higher than A- rated general obligation bonds, four levels below the city’s current rating, as per Bloomberg. Despite the price, the city got approximately $1.9 billion of orders, or twice the bonds offered for sale, from institutional investors, with individual investors ordering another $212 million.
Apparently, investors are not afraid of the Big Apple’s demise. Rather they are eager to get in while the bond yields are so low, explained Cooper Howard, director of fixed-income strategy at the Schwab Center for Financial Research, the firm’s division for independent research. Yields are now at the lowest levels seen since the 1950’s, thanks mainly to the Federal Reserve’s intent of keeping interest rates close to zero, and lending to states and local governments where needed.
Before the pandemic, cities and states enjoyed a long period of growth, which should have served to line their pockets in case of such a crisis. Still, Mayor Bill de Blasio had only managed to balance the year’s budget using close to $3 billion in reserves and $3 billion of cost-cuts.
