Municipals lost a debt buyer

Goldman Sachs Group Inc. has shifted money to the sidelines of the municipal junk-bond market, waiting for it to crack. 

 The company’s $7.3 billion High Yield Municipal Fund, the third biggest focused on the riskiest state and local government debt, had about 62 percent of its assets in investment-grade securities by the end of April. It marks the fund’s biggest move ever away from the lowest-rated bonds and a wager that the run-up in prices will reverse as speculative projects start to run into distress, said Ben Barber, head of municipal bonds at Goldman Sachs’s asset management arm, which oversees $62 billion of the securities.

GoldmanSachs is looking at Illinois, California and New York.  These are all scrambling to pay unexpected pension costs and a slowing economy hits their sales tax income hard. A lot of school construction debt is coming due which drives down prices and rate go up.