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Detroit Bankruptcy Prompts Bond Purchase Frenzy

Jul 30, 2013
Joey Peters

The recent bankruptcy proceedings involving the city of Detroit has turned the city's municipal bonds into Wall Street's hottest trade per Business Insider. Hedge Funds, according to industry insiders, are betting the city's insurance-backed bonds will eventually produce long-term gains as these same insurance carriers continue pay-outs in the interim. The demand is so large, according to the article, a waiting list of hedge fund firms has been created given the limited supply of available bonds.

Per CNN Money, several hedge fund firms were able to purchase $5 million in Detroit Pension Bonds for 41 cents on the dollar in the days proceeding the bankruptcy filing by the city. All told, Hedge Funds could be targeting approximately $1 billion in general obligation bonds backed by Detroit for various projects and campaigns, per the article. Once one the country's largest cities, Detroit is now the largest municipal bankruptcy filing in U.S. History - citing over $18 billion in unpaid debt obligations per the article.

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