The $80 billion municipal tobacco bond market's perfect record ended on June 1, 2026, when the Nassau County Tobacco Settlement Corp. defaulted on a $35.9 million principal payment.
The bonds plummeted to 52 cents on the dollar.
Tobacco bonds are backed by payments from the 1998 Master Settlement Agreement between tobacco companies and 46 states. In April 2026, Nassau County's revenue was just $14.7 million, far short of the $44.2 million needed for debt service.
The total outstanding obligation on these bonds has grown to roughly $510 million.
Market participants had anticipated trouble: spreads on comparable tobacco bonds widened by more than 80 basis points since mid-2025, signaling growing risk.
For investors, coverage ratios are now critical. Bonds with thin coverage and near-term maturities are most vulnerable.