In markets, price always catches up to fundamentals. Unfortunately, we’re seeing that happen rapidly with Chicago’s bond yields, which are now at 10-year highs. Our credit spreads also have blown out to the point we’re trading in junk-credit territory. Obviously this isn’t ideal. As I note in the quoted post, we now have yields meaningfully above the weighted-average coupon of existing city debt. This makes refinancing with GO bonds a non-starter and I’m not sure it’s that attractive even if using the higher rates Sales Tax Securitization Corp bonds. I am highly skeptical that the city’s planned refinancing (which was initially planned for this month) makes sense or ties out to the original math the city shared earlier in the summer. And if we go forward with the planned $500m GO bond offering in October it will be very costly based on current market pricing. In just the last few weeks, our spreads to AAA municipal credit have widened about 50-60 basis points based on the tenor. That’s an extreme move! The market is pricing in a downgrade much quicker than the rating agencies will move. Again - we now trade at higher spreads than the average sub-investment grade bond in the Bloomberg high-yield municipal index. We are for all practical purposes a junk-rated credit. I don’t care what the technical label is, I care how we actually trade. What makes things even tougher near-term is that BBB spreads (what we are nominally labeled) are fairly tight relative to their history with little scope for further tightening - meaning risk is credit gets more expensive. In addition to interest rates moving up generally, there is a massive amount of planned municipal issuance on slate for this fall and that’s on top of increasing Treasury and corporate issuance. Even municipalities on solid financial footing will be forced to borrow at higher rates given market dynamics. The city only has three ways to make its fiscal numbers work: (1) more debt (impractical now), (2) more taxes (I doubt it’s politically possible and it’s bad policy), (3) cut costs. Of course, improving our economic growth trajectory would help but that will pay off over time. Higher yields make the problem more immediate. When I testified to the Finance Committee in the summer of 2025, I warned all this was a risk and was largely dismissed by the city’s finance team and mayor’s allies as an unreliable, non-expert… Unfortunately I don’t see things getting easier. Key passages from testimony still apply: “In conclusion, my concern is that evolving economic and credit dynamics mean that we cannot prudently tap debt markets to finance our growing deficits. The risk of an unintended error is high, as our credit spreads are more reflective of fund flows into the municipal asset class than our fundamentals. The narrowing of that gap would be extremely costly and further constrain our budget flexibility. Unfortunately, I do not see an easy way out of our fiscal challenges. To rehash, a world of increasing economic friction combined with stubborn inflation and unsustainable federal finances is not a world in which interest rates are likely to markedly decline. If the term premium on the 10-year Treasury is rising - meaning the extra compensation investors demand for rolling over a series of shorter-term bills - you can bet that the borrowing premium investors will demand for cash-strapped municipal governments will also rise.”