Detroit-Linked Michigan Interest Rates Go Crazy

Michigan’s Finance Authority is offering an interest rate 14 times higher than that on top-rated bonds to sell $92 million of one-year notes for Detroit’s public schools, reports Bloomberg.

Today’s offering is the first tied to the city since it sought bankruptcy protection July 18. The bonds are backed by state aid payments.

The securities maturing in August 2014 are being offered with a preliminary yield of 4.5 percent, according to three people familiar with the sale who requested anonymity because the pricing wasn’t final. says Bloomberg. That compares with a 0.32 percent interest rate on benchmark AAA munis due in one year.

Note well this event. When financial problems spread to other cities and states, and when interest rates overall are much higher, some cities will be forced to pay rates in the double digits. I they can raise money at all. You heard it here first.