New York City bonds have suddenly become a hot topic on Wall Street — and you can thank socialist mayor Zohran Mamdani for this surprising development.
This past week, the Big Apple went to investors to sell billions of dollars in municipal bonds.
When Mamdani made his best example of Fidel Castro, the city sold 2.3 billion dollars – $ 300 million more than it had planned.
Remember, I have been providing NYC bond contracts for decades.
Most of the time, they have been what you would call boring – in a good way.
Even back under Mayor David Dinkins, when the city was reeling from the stock market crash of 1987 — not to mention Dinkins’ largesse — sales of city bonds remained very strong.
Once the financial crisis of the 1970s and somewhat faded in the minds of investors, the NYC bond issues have been “oversubscribed,” which in Wall Street lingo means that there are more buyers than there are bonds available for auction.
That’s because of the heavy tax burden of the city and the state and how the city’s debt provides a large yield that is tax-free three times, and not least, the protection provided by something called the Financial Emergency Act of 1975, a national law designed to make sure that what went down in the 1970s does not happen again.
The fact that the city had to scale back the latest bond issue because of weak demand shows a certain investor spirit in what Mamdani is doing, according to well-placed investors.
One broker who deals with super-wealthy people looking for tax breaks on municipal debt says many of his clients stay away from NYC debt — simply because they don’t trust Mamdani.
He said: “I have customers who sell them and some who don’t want to have them.
“That’s unusual because taxes might go up. I don’t think they will, but it’s been hard to make a sale.”
You wouldn’t know any of this based on the outcome of the city and its Wall Street writers.
Because of the shock that the Iran conflict has produced in the world markets, especially the bond market where the NYC debt is bought, the sale has gone very well, they said.
A sign of confidence?
“The steady demand for the City’s municipal bonds in the face of market uncertainty is a clear sign of confidence from investors who know our credit is strong,” said city manager Mark Levine in a statement, according to Bloomberg.
(A City Hall representative did not return a request for comment.)
Reality check: First, the city paid a higher interest rate on those bonds than in the past, which means selling the debt is still more expensive than it used to be.
Remember that the state’s bankruptcy law, which provided great protection for city bonds in good times and bad, was created when the recession hit and NYC couldn’t sell bonds for infrastructure; and the policemen were fired as were the city workers.
The Emergency Act created a system where investors would not be afraid to buy our debt because they got first dibs on the city’s tax revenue.
This is another reason why Mamdani, for all his dedication to control, is still able to tap Wall Street when he needs to.
If you believe that the city will not survive according to the above, its bonds may seem like a good place to park money.
In times of financial stress when yields (their interest rates) rise and prices fall, you can make a few bucks by rolling the dice on Mamdani.
But that gamble is getting more dramatic now that we have a famous socialist mayor who plans to pay taxes and destroy the city that is not to be forgotten.
This is also why the elites are worried that Mamdani’s budget will not work.
Three agencies recently changed their outlook on the city’s debt to “negative” from “stable”.
And that’s why even the city manager is worried about Mamdani’s decision to attack the rainy day budget to try to find a balanced budget, which he has to do under the Financial Emergency Law.
If he ends the year with a deficit of just $100 million, Mamdani faces a federal takeover of the city’s finances.
In other words, the city will end in Albany.
Mamdani wants to raise taxes, but a growing chorus of Dems, the governor included, know it’s like pulling a string; people leave, as they always do, which means there are fewer taxpayers to pay as welfare rolls grow.
Then there is the obvious ignorance from City Hall. It estimated a 15% increase in Wall Street bonuses to pay for the mayor’s $127 billion budget but instead bonuses grew 9% from 2024.
With the likes of JPMorgan and Goldman Sachs hiring more in places like Texas (which has no income tax) and low-tax Utah, you can see how even that healthy increase will slow down in future budgets.
Put them together and you could say that there were buyers of city bonds, but the truth is that they want more money for their money because they are getting scared – which they have a right to be.
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