Chicago’s municipal debt is under pressure as investors demand higher yields amid mounting concerns over the city’s $1.15 billion budget shortfall for 2026, Bloomberg reported.

Spreads on the city’s most actively traded tax-exempt bonds, maturing in 2042, widened to 1.54 percentage points above benchmark municipal securities on Thursday, up from 1.17 percentage points a year earlier. Prices for the same debt dropped to 98.6 cents on the dollar from $1.054 in mid-September 2024.

Market participants cite structural fiscal imbalances and recent revenue shortfalls as key drivers of the sell-off. “Chicago is running out of levers to right its fiscal ship,” said Vikram Rai, portfolio manager at Fny Capital Management, noting a steady flow of negative headlines.

Mayor Brandon Johnson, who last year faced a rejected $300 million property tax increase, is expected to present a plan to close the deficit in mid-October. Fiscal 2024 ended with a $146 million shortfall after weaker-than-expected business tax revenue and the absence of a school pension reimbursement.

Credit agencies have reflected the city’s challenges: Moody’s revised Chicago’s debt outlook to stable from positive, while S&P lowered its rating to BBB in January. Mohammed Murad, head of municipal credit research at PT Asset Management, noted that investors are increasingly selective, particularly for lower-rated bonds.

Chicago is among several US cities confronting post-pandemic budget pressures. New York, San Francisco, and Los Angeles are also weighing austerity measures as federal pandemic aid has run its course.