NYC Bond Investors Urged To Stay Calm Over Mamdani Fears
Caplan said his message to clients is that New York City is in good financial shape.
Money managers are fielding queries from worried investors about what New York City mayoral frontrunner Zohran Mamdani means for the city’s finances.
And their answer? Keep calm and carry on.
JPMorgan Asset Management said in a blog post that it has been receiving questions about what a “democratic socialist mayor might mean for the future of New York City.” Stu Caplan, a financial adviser in suburban Philadelphia, says he’s been getting phone calls from clients holding New York City bonds. Eric Kazatsky, client portfolio manager at MacKay Municipal Managers, said his team would buy the dip if there’s any selloff post-election.
Caplan said his message to clients is that New York City is in good financial shape. “Campaign promises don’t always translate to policy and even if they do translate to policy, they don’t happen overnight,” he said.
Mamdani’s platform has rattled the business community, notably the financial and real estate industries, ahead of the Nov. 4 election. He wants to raise $9 billion in tax revenue by raising taxes on millionaires and corporations to fund his plans to provide free childcare and buses and build 200,000 new units of permanent affordable housing. But state control of the city’s taxing and borrowing power and fiscal guardrails imposed on the largest US city in response to the 1970s fiscal crisis will prove a major obstacle to the Democratic nominee’s promises.
JPMorgan’s Maria Cristina Gallagher and Catie Tsao highlighted those impediments to his agenda in their blog post earlier this month.
“We continue to see value in the New York municipal market for city and state residents, and in some cases for national buyers, as after tax yields are attractive,” they wrote.
Mamdani’s lead in the mayor’s race over former Governor Andrew Cuomo, who is running as an independent, has widened since last month, according to a poll released on Thursday by Emerson College Polling/PIX11/The Hill.
State Guardrails
Kazatsky said the city’s state oversight and balanced-budget requirements, as well as its debt structure and bondholder protections, are “silver linings.” “To buy that credit post-election, when we anticipate spreads might be wider, that’s an opportunity for us,” he said.
New York City bonds have “hung in well” in recent months, even as Mamdani gained momentum, according to Kyle Gerberding of Asset Preservation Advisors. He, like others, emphasized the state’s power over decisions around the city’s finances. Governor Kathy Hochul “has already said she does not support some of the more wild promises that have been made,” he added.
And if recent history is any guide, there were similar concerns over former Mayor Bill de Blasio, and those reversed as the market realized many of his socialist-deemed policies weren’t going through either, Gerberding said.
The city’s general obligation debt carries the third-highest rating from Moody’s Ratings, S&P Global Ratings and Fitch Ratings.
Mamdani’s proposal to raise the city’s income tax on millionaires by 2 percentage points would benefit tax-exempt munis if it’s enacted, according to Caplan. As taxes go up, so does the value of tax-exempt bonds.
Still, any tax hike would have to be passed by state lawmakers — and Hochul has said she’d oppose an increase to income taxes on high net-worth people.
“If he somehow gets a tax hike, the wealthy are just going to go buy more municipal bonds to protect themselves, so it’s probably a good thing for bonds,” Caplan said.
