I explore what U.S. state government bond prices imply about the relative recovery rates of pensioners and debtholders in a state default. Across U.S. states from 2005 to 2016, a one- standard-deviation increase in the ratio of unfunded pension liabilities to GDP is associated with a 27-32 basis point increase in bond spreads over the Treasury rate. Unfunded pensions cost U.S. states over $2 billion in lost bond issuance proceeds in 2016. Event study exercises examining the reactions of bond spreads to a pension reform in Illinois provide evidence that the effct of unfunded pension liabilities on bond spreads is causal. The effect of unfunded pension liabilities on bond spreads is stronger in states where pensioners are likely to have higher bargaining power or legal protection in a default. These facts are consistent with predictions from a structural model of municipal government credit, and model estimates reveal substantial cross-sectional variation in investor perceptions of pension seniority. These perceptions are related to state-level political and legal factors which may affect recovery rates of pensioners in a default.