Daniel M. Gallagher, a member of the Securities and Exchange Commission (SEC), is not backing down from recent comments regarding what he called “Armageddon risks” in the municipal bond market.
“I made the comment in the context of credit risk plus interest rate risk being two major factors that maybe investors don’t fully understand,” Gallagher said in an April 23 article by Investment News. “The population of investors in this space means we have to double down on investor education.”
Gallagher made the Armageddon reference last week at a round-table discussion sponsored by the SEC on fixed-income markets. Specifically, Gallagher stated that combining rising rates with the recent California muni bankruptcies could translate into potential “Armageddon.”
What concerns Gallagher, as well as others, is the trend of credit quality in the municipal bond arena, combined with an environment in which rates can only go up and thus drive down the value of existing bonds.