Market Already “Emotionally Prepared” For Chicago Loss in Supreme Court Pension Case


A Supreme Court ruling on the legality of Chicago’s 2014 pension reform law is coming soon.

But in the interim, at least one group is decidedly pessimistic about the city’s chances of winning: municipal bond investors, who are already “emotionally prepared” for Chicago to come out on the losing side.

More from the Chicago Tribune:

Investors are already marking the fight down as a loss that will strain city coffers and boost pension costs by billions.

Conning, which oversees $11 billion of municipal bonds including Chicago debt, has encouraged investors to reduce their holdings for more than a year, and said the projected negative ruling affirms that view. Wells Fargo Asset Management, which holds $475 million of Chicago general obligations, said the market is “emotionally prepared” for the loss, and hasn’t materially changed position.


“As an investor, you have to assume that the city is going to lose,” according to Matt Fabian, a partner at Concord, Massachusetts-based Municipal Market Analytics, who said the city is still a good purchase for investors seeking tax-exempt income. “The city doesn’t have many triggers left to pull.”

Market analysts including Fabian, Paul Mansour of Conning and Dan Heckman of U.S. Bank Wealth Management don’t expect much of a market reaction, unless the justices reverse the lower court’s decision in a surprise move.

“If the city wins, you could see some positive price action just because it’s been void of victories from a financial standpoint,” Gabe Diederich of Wells said. After the win on higher property taxes rallied Chicago bonds, a positive court ruling on the pension overhaul “just shows they’re taking steps, and they’re taking steps that are being either recognized, or upheld that can get put through.”

There is currently no timeline on the Court’s decision.


Photo by Pete Souza via Flickr CC License

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