The recent Los Angeles wildfires have had a significant impact on the $4T dollar municipal bond market. According to VanEck, approximately $70B dollars of this market was exposed to the wildfires at the end of January.
This exposure led Standard & Poor’s to lower its rating on the Los Angeles Department of Water and Power (LADPW), citing concerns about reserves, insurance coverage, and potential litigation, making this the first time such a down-grade has been tied to future climate risk.
Municipal bonds have traditionally held up well given the back-up federal support they have had in the wake of natural disasters, but as the federal government considers backing off from FEMA support, municipalities will need to put more money into climate adaptation and resilience, as they will be less able to afford huge losses due to extreme weather events.
Hear more from Jeff about the potential implications of this, also in the wake of the North and South Carolina wildfires, in his recent interview (7 min) from the NYSE.
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