Market Insider

Chicago ratings cut: Should investors be worried?

Chicago
Garron Nicholis | Flickr | Getty Images

Spillover effects after Chicago's ratings downgrade are expected to remain minimal, but municipal bond investors may be feeling nervous that there are other shoes to drop.

In recent months, the $4 trillion municipal bond market has been rattled by Detroit's bankruptcy, Puerto Rico's fiscal pains and unfunded pension liabilities in several other states. According to the latest research from Morningstar, worried investors have been retreating heavily from muni funds since March.

Adding insult to injury, Fitch Ratings docked Chicago's bond ratings by three notches Friday evening, with a negative outlook, citing the city's tepid economy and its bubbling unfunded pension liability.

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