Municipal bond exchange traded funds gained ground Wednesday after Harrisburg, Pa., filed for Chapter 9 bankruptcy as experts said the debt represents a tiny portion of the $3 trillion muni bond market, according to reports.
The iShares S&P National AMT-Free Municipal Bond Fund (NYSEArca: MUB) and SPDR Nuveen Barclays Capital Muni Bond (NYSEArca: TFI) were both fractionally positive Wednesday afternoon. [Muni Bond ETFs Rise as Meredith Whitney Sticks to Her Guns]
Harrisburg, Pennsylvania’s capital, is seeking bankruptcy, according to reports Wednesday.
The U.S. Middle District bankruptcy court’s petition listed around $458 million in creditors and claims, noting that the capital city faced “imminent jeopardy” from legal actions, reports Mark Scolforo for the Associated Press. [State Deficits May Rattle Muni Bond ETFs]
“The magnitude of that debt is sufficiently large that it dwarfs the city’s other liabilities,” attorney Mark D. Schwartz said. “Under the guaranties, the city would need to cover a combined $83 million of past due payments and the 2011 debt service.” [BlackRock Analyst Prefers Muni Bonds Over Treasury ETFs]
“The city does not have the ability to pay those money judgments or any significant portion thereof and still provide health and safety services to its citizens and other essential government services,” Schwartz added. [Muni Bond ETFs Shrug Off Moody’s Warning on States]
The bankruptcy filing was signed after a 4-to-3 council vote in favor to authorize late Tuesday. [BlackRock Likes Muni Bonds, Investment-Grade Credit]
The news raised questions over whether the already troubled muni bond market will see further setbacks, SmartMoney reported. “Regardless of the risks, investors seeking decent yields have been pouring into muni bond funds,” according to the report.