The Crumbling Muni Bond Market Monolith

Is the municipal bond market a safe place for clients to put their money? Actually, a new study suggests that the question itself may be flawed – because the municipal market is far from monolithic, and municipal defaults are more common than ratings agencies have indicated. The study was authored in August by three Federal Reserve experts on the subject – Jason Appleson, Eric Parsons and Andrew Haughwout.

Moody's and S&P have each published default studies on muni bonds that they rate, indicating there have been 71 and 47 defaults, respectively, from 1970 through 2011. But when unrated bonds are included, muni defaults increase to 2,521, say the authors.

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