Chicago's general obligation bonds have cheapened in recent weeks despite a broader municipal market rally as the city's junk-rated school district comes to market and investors watch to see how leaders manage a substantial budget deficit, rising pension costs and chronic negative headlines from the Trump administration.
The spread for the 10-year Chicago GO benchmark yield widened by almost 40 basis points last week, to 139 basis points over the AAA 10-year, according to Pat Luby, senior municipal strategist at CreditSights.
A specific Chicago GO bond widened 19 basis points week-over-week, said Steve Majoris, a portfolio manager at Advisors Asset Management.
"That stands out because the overall investment-grade market has tightened," Majoris said.
While Chicago bond performances vary, some have slid down in price for months. Roughly $2.2 million of a Chicago GO bond with a 5% coupon due in 2044 traded Friday for 97.05. That's about on par with or higher than round-lot trades earlier in the summer but down from 101 in January and 105.69 on Sept. 11, 2024, according to the Municipal Securities Rulemaking Board's EMMA website.
The city is also lagging behind the performance of the large U.S. city GO index, according to the University of Chicago Center for Municipal Finance's
The index shows that big cities overall are up 10.8% in 2025, but Chicago is only up 4.3%, noted Justin Marlowe, the center's director.
"Investors aren't fleeing Chicago GOs, but Chicago is definitely losing ground relative to its peers," Marlowe said.
The cheapening is a mix of broader market dynamics and Chicago-specific troubles, investors said.
On the technical side, the amount of supply is driving some spread widening. In particular, this week's
"Not everybody is going to be comfortable with Chicago Board of Ed or Chicago GO, but if you like Chicagoland and are okay adding exposure, then the Board of Ed is going to give you a lot more yield, and this will be an unusually long structure," said Luby, noting that the backloaded debt payment structure allows the district to delay principal payments until 2047.
Recent supply from other Illinois names, including the
"Naturally the credit gets less attractive the more supply is out there," Majoris said.
But Majoris and other investors noted the city is also facing a slew of pressures that could be rattling bond buyers. Chicago faces a significant structural imbalance and a heavy pension obligation, both of which contributed to
A tense political standoff between Republican President Trump, Gov. JB Pritzker and Mayor Brandon Johnson, both Democrats, over federal immigration enforcement and the city's crime levels has also created the kind of negative headlines that catch investors' attention.
"The city has been in the headlines a lot with regard to crime and the president commenting on sending in the National Guard," Majoris said. "That's just one more pressure on the name," he said. "It's a little bit of everything."
Lisa Washburn, managing director at Municipal Market Analytics, said it seemed multiple pressures are hitting at once for Chicago: the Chicago Public Schools refusing to make a disputed pension payment in
That all culminated in the
Washburn said it may have taken a few days for the impact of that outlook revision to sink in, coming as it did right before the holiday weekend.
"Chicago went into the current calendar year already facing challenges," Washburn said. "The debt that they issued at the beginning of the year was very back-loaded. There is a lack of willingness to move forward with permanent structural solutions.
"Moody's called more attention to what was going on," she said. "Those Friday actions are always hard."
The city's current battles with federal immigration officials don't have much bearing on its financial state, Washburn said. But she voiced surprise that the White House attacks on Chicago and Illinois have not yet seemed to unite the administrations of Johnson and Pritzker more closely.
"There doesn't seem to be the help that Chicago needs coming from the state. I would have expected more alignment there," she said.
With Johnson set to unveil his spending plan in mid-October, investors are closely watching to see whether the administration's plan to close its budget gap undermines or strengthens the city's credit.
"Rising budget deficits, as in the city's case, can likely be addressed with one or a combination of levers including additional borrowing, use of liquidity, expanded revenue, or service cuts," said Mohammed Murad, director of municipal credit research at PT Asset Management LLC, in an email.
Expanded revenue or service cuts may be "more politically challenging in this case," Murad said.
"I view the use of additional leverage and or liquidity — for credits in the lower end of investment-grade scale — as layering in more risk if prospects for a future balanced budget or operation are not in place," Murad said.
Moody's rates the city Baa3 with a stable outlook. Fitch Ratings and KBRA assign an A-minus rating with a negative outlook. S&P Global Ratings rates the city BBB with a stable outlook.
