April 11, 2022


New York elected officials are scrambling to spin their disastrous population losses as something that can easily be reversed with just a few tweaks to the business environment, more federal aid and more spending from Albany and City Hall.

Sorry, the municipal-bond market appears to disagree. . . .

A little background on munis: They don’t often follow the same set of rules as other types of debt, which rise and fall based on broad economic trends and interest rates.

That’s because municipal bonds are a tax haven. Even when rates rise and other bonds fall, rich people in high-taxed places (i.e. New York) can often be counted on to keep buying city and state debt.

That appeal is now eroding, traders and investment bankers who specialize in New York State and City bonds tell me. The most logical explanation isn’t simply too much supply or higher interest rates. The appetite from millionaires should still be there: City and state taxes continue to hit the wealthy harder than ever.

Plus there’s no immediate worry of budget shortfalls and bond-rating downgrades that depress prices ­because both city and state coffers are flush with federal COVID-relief money.

The only explanation, market professionals tell me, is a growing number of rich people who no longer need to seek New York ­munis as a tax haven — because they now live in Florida.

The Bear Traps Report, a research platform, crunched some numbers for me and came up with the following: Yields on Florida munis have often been higher than those from New York because there was more demand for the Empire State debt and less demand for tax-free bonds in a low-tax state like Florida.

That began to shift over the years, but most significantly in early February of this year. Now New York bond yields are higher than Florida’s just as the Empire State’s rich-resident tax base has significantly thinned.

It’s not like they weren’t warned.

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