Steven Cuevas / KPCC
San Bernardino city council voted to prepare a bankruptcy late Tuesday. The bind market was completely shocked.
You'd think a $3.7-trillion municipal bond market would watch over the cities that issue debt like a hawk. But of course, that can be tough when you're talking about something that big. And although ratings agencies like Moody's and S&P monitor the finances and prospects of default for thousands of cities, they don't always have a clue what's going on inside city hall.
Shocking as it may sound, right up until it voted to move toward a Chapter 9 declaration earlier this week, San Bernardino's bonds were rated "investment grade" — meaning that institutional investors and big mutual funds could buy them. Some of the city's bonds have been downgraded to "junk" status now, reports Reuters. But from the perspective of the bond market, San Bernardino didn't look like a city facing a fiscal crisis with effectively no money in the bank, the inability to meet its payroll, and a possible scandal brewing over whether the city has accurately represented its finances to the outside world.