Lead — The desk sees a growing divergence between market sentiment and UBS's maintained confidence in New York City's municipal credit following Zohran Mamdani's election. Per the full note , while political shifts tend to raise concerns about fiscal stability, UBS has affirmed current risk categories, suggesting that credit fundamentals remain robust despite perceived risks. The consensus target for New York City's bonds sits at 1.075, indicating a cautiously optimistic stance among fixed-income investors amid ongoing political dynamics.
What the desk is arguing
The desk posits that the election of Mayor Zohran Mamdani will not lead to significant deterioration in the creditworthiness of New York City's debt. Per the commentary by Janine Lennon and Ted Galgano, UBS's Chief Investment Office (CIO) has not altered its risk classifications despite a potentially contentious political landscape, emphasizing a continued confidence in the city's $46 billion of General Obligation (GO) bonds, which remain categorized as risk category 3.
Despite the initial market reaction, which has shown some spread widening, UBS's outlook reflects a careful assessment of the city's fiscal management capabilities, thereby indicating stronger fundamentals than might be suggested by electoral outcomes alone. The affirmation of credit risk categories signals that the team at CIO expects the financial environment to remain stable, even with a progressive shift in leadership.
Where it sits in our coverage
Our consensus target for New York City debt is set at 1.075, with a range indicating a minimum of 1.04 and a maximum of 1.12. Notable firms aligning with this outlook include: - jpmorgan: targeting 1.10 by March 26 - bofa: targeting 1.04 by March 26
This view aligns with jpmorgan, indicating confidence in the higher end of the range, while diverging from bofa's more cautionary approach at the lower boundary. The desk’s position suggests stronger anticipated support for NYC credits as Mamdani takes office, providing an opportunity for prudent positioning.
How other firms see it
Firms such as jpmorgan and others are generally aligned in their optimism regarding New York City bonds, reflecting a stable credit outlook amidst the leadership transition. Conversely, bofa presents a more cautious stance, indicating concerns that might be macroeconomic in nature or related to the political climate.
Key market indicators around this narrative include the performance of municipal bond yields and future tax revenue forecasts that could influence the city’s fiscal health.
What the calendar says
There are no scheduled high-impact events in the next 30 days for this jurisdiction, allowing investors to gauge market responses more organically to Mamdani's incoming administration without external pressures.
01Zohran Mamdani's election has raised some credit concerns, but UBS maintains risk categories.
02CIO's reaffirmation indicates confidence in New York City's fiscal fundamentals.
03Current consensus target is 1.075, reflecting an optimistic outlook on NYC municipal debt.
Market implications
Traders should watch for further spread movements in NYC municipal bonds, particularly as initial market jitters settle post-election. Key pricing levels around the current consensus target of 1.075 will be crucial in assessing market sentiment.
Risks to this view
A significant policy shift by Mamdani that adversely impacts tax collections or public spending could destabilize the city's credit rating, reversing the current bullish sentiment.
ubs
Hi everyone, Dan Cassidy here. Welcome back to the UBS Market Moves podcast channel. For today, we are featuring an update from the CIO Municipal Research Team.
We are joined today by Municipal Strategists Janine Lennon as well as Ted Galgano with an update on an ongoing series of publications and blogs focused on New York City. For today, they will be referencing the recent publication from the UBS Chief Investment Office titled New York City Looking Ahead, which was authored on November 7th and is available for you now up on UBS.com forward slash CIO. So with that, Ted and Janine, thank you both for joining our listeners and our clients here on Market Moves.
I will now turn it over to you both for today's update. Following our last biweekly podcast, we continue to receive questions about the future of New York City and how its leadership or its new leadership may impact investment portfolios. So to answer some of those questions following Mayor Mandami's win, Janine published a municipal brief titled New York City Looking Ahead that was published on November 7th and there's a lot of great information in there.
He received about 50% of the count vote and he's going to wind up serving as New York City's 111th mayor starting on January 1st. So this is going to mark both a very progressive and generational shift in a deeply divided democratic city. So with that, Janine, can you take a moment to discuss some of the reports, the highlights, as well as touch upon why we may be seeing some marginal spread widening, in your opinion?
Good morning, everyone. The most notable highlight was to let our clients know that CIO has affirmed all of its covered New York City names at their current risk category levels and that's despite all the headlines and perceived increase in credit risk with Mandami's win. That includes New York City GOs as CIO risk category 3 for its $46 billion of outstanding debt.
The New York City transitional finance authorities, future tax secured bonds as a CIO risk category 1 and that covers $56 billion of its outstanding bonds. And New York City waters as CIO risk category 2 and that's for its $34 billion of debt. So all together we have about $130 billion of New York City's debt affirmed.
As a reminder, that scale is 1 to 5 with 1 representing the lowest risk, 2 still representing low risk, and 3 representing a moderate risk. With regards to some spread widening, I'm not surprised to see some widening given Mandami's proposals and tone are very strong in a highly politicized environment coupled with a confrontational relationship with the Trump administration. Additionally, these tensions were already underway when we saw various types of grants and funding frozen under Mayor Eric Adams who was actually attempting to work with the administration.
With tensions high and a record amount of supply in both New York and the nation this year, I wouldn't be surprised if investors are taking a wait and see approach until Mandami takes office and some clarity emerges over the next year. With New York being a high tax state and city residents getting the most value from New York City credits, many folks are likely concentrated in New York City and again are probably holding off on adding more exposure during this uncertain time. Now if this was any other city in the U.S., I'd expect that we would have seen significant non-marginal widening at this point, but it's the financial guardrails and oversight that are unique to New York City that has kept spreads mostly stable thus far.
OK, great. Thanks for that. It's good to hear that despite some of the scaremongering headlines that we have affirmed our CIO risk categories and certainly understand why there may be some spread widening going on.
That said, can you explain why you think New York City's credit quality won't materially weaken under Mandami's watch? Certainly. Following a decade of questionable accounting practices and unrestrained spending, the city found itself on the brink of bankruptcy in 1975.
As a result, the state legislature's passage of the Financial Emergency Act established various levels of oversight, including the creation of an emergency financial control board to closely monitor the city's finances as well as implementing various reforms that the city must still abide by today in order to maintain financial stability. Notably, legislation was passed earlier this year that extends that act to at least 2035. So while Mandami's policies are bold and unprecedented, he has little sway unilaterally as a mayor as to whether or not they actually become policy, given the financial guardrails and oversight in place to maintain the city's strong credit quality.
OK, thanks, Janine. That definitely helps provide a rationale as to why you are, you know, not suggesting clients should sell their New York City holdings as long as they can withstand some headline volatility. So let's dig a little deeper into your response about how Mandami cannot unilaterally control his proposals becoming policy.
What does that mean exactly? Yes. In looking at Mandami's proposals from a very high level, he seeks to make the city become more affordable by offering a host of services for free, such as buses and daycare, among others.
His plan would cost about $10 billion each year, which, if implemented, would be funded by an additional 2 percent levy on residents' personal income, and that's for residents making over a million dollars, as well as via an increased corporate tax rate. Notably, both tax increases require state lawmakers on the governor's approval. That is what I mean when I say that the mayor's proposals are essentially not actually within his singular control, if you will.
And again, this is very unique to New York City, given their financial oversight stemming from their financial difficulties in the 70s, which we view as a positive for protecting the city's credit. Notably, while the governor has been averse to raising taxes, some sources, including Politico, now say that she is more recently modifying her tone by considering a corporate tax hike to fund universal child care, noting that the media outlets cite that those with direct knowledge of the talks were granted anonymity for their sources. This would be a notable shift for Governor Hochul, who will be campaigning over the next year against Republican candidate Elise Stefanik, who does not support Mamdani's socialist proposals or tax increases.
While raising taxes is not generally positive while running for office, Governor Hochul will need to carefully weigh the support of Mamdani's base while balancing the city and state's economic competitiveness compared to lower-tax states, if you will. So, should Governor Hochul agree to a tax hike, it would likely be after careful electoral consideration as Hochul seeks Mamdani's base support while trying not to alienate moderate constituencies across New York. As such, we expect Hochul's support of Mamdani, any associated tax hikes, and broadly, the state support of New York City, to be a central focus of the 2026 governor's race, noting that Governor Hochul's support in 2022 was somewhat slim with 53% support against Republican Lee Zeldin.
So, we will be carefully watching Governor Hochul's actions and their impact on both New York City and the state. Thanks for that summary. So, it sounds like there's definitely a lot for the governor to consider in the year ahead as she navigates her way through the campaign trail, and we'll see how that impacts things.
I would also note that New York MTA operates the New York City bus system, which the mayor also has no control over, so that will impact his plans for free buses. With that said, aside from both city and state politics, how is New York faring under the Trump administration, and what type of financial conditions is the city in today? Yeah, great question.
You know, with all eyes being on the mayor's race more recently, headlines surrounding federal funding freezes and cuts have somewhat subsided. While New York City's fiscal year 26 operating budget only relies on about $7.4 billion, or about 7% of its total revenues, in direct federal funding, it does also receive other types of indirect support, such as grants that are subject to executive action. Indirectly also, city residents, like residents around the country, will also be impacted by the modifications to Medicaid and SNAP, which will be phased in over the next decade via the passage of the One Big Beautiful Bill.
While federal uncertainty is expected to continue, especially given the hostile relationship with the mayor-elect, Maumdani, we are provided some comfort knowing that federal delays, clawbacks, and reductions had a small impact on fiscal 25 operations that ended just on June 30th. The city's tax revenue actually increased by about $6.1 billion in fiscal year 25. This is notably 8.3% over the prior year, or 4.2% higher than forecast, with property tax revenues continuing to represent the largest share, or 43% of tax revenue, which grew 5.4% year over year.
The city is budgeting more modestly for 1-3% tax revenue growth in its 4-year plan, resulting in a projected $4-10 billion structural deficit through 2028. While the deficit is large, this is typical by historical standards for New York City, and again, based on conservative budgeting. The city still maintains $11 billion in reserves to provide a cushion against both local and federal uncertainty in the years ahead.
Thanks very much, Janine. I guess between the strong fiscal guardrails, solid reserves, and higher-than-expected revenue performance, these all serve as the rationale for spreads only marginally widening in the face of certainly confrontational relationship with the Trump administration. So looking ahead, we'll continue to see where Mayor-elect Maumdani slowly announcing his transition team.
We've seen Linda Kahn is functioning as his co-chair, serving as the formal Federal Trade Commission under the Biden administration. Kahn has already announced she'll be exploring various ways to maximize the mayor's executive authority, which is, of course, seeking greater ability to do things unilaterally. Today, we also saw that Jessica Tish announced that she will remain the NYPD commissioner under the next mayor, which will ensure some continuity as the city transitions to a new administration.
She's certainly been a very popular commissioner, I would say, so that's good news. With that, we will continue to monitor both the mayor-elect's and the governor's support of the city over the coming months, and we'll report any impacts if necessary. Well, Janine and Ted, thank you again for dropping by UBS Market Moves for the update.
Again, today we have been joined by Janine Lennon, as well as Ted Galgano, municipal strategists from the UBS Chief Investment Office. They have been referencing the recent report, New York City Looking Ahead, which again was authored on November 7th and is available now for you up on UBS.com forward slash CIO. For clients of UBS, please reach out to your UBS financial advisor if you would like to receive a copy of the report directly.
From UBS Studios, I'm Dan Cassidy. Thank you for joining us. Thank you for tuning in.
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