![]() ![]() This means that on average, 3 out of 10,000 municipal bond issues rated double A or single A by Moody’s defaulted over a 10-year span.03% is 3 out of 10,000. On Aa and A rated municipal bonds, the 10-year cumulative default rate is. You will notice that the 10-year cumulative default rate from this period on Aaa-rated municipal bonds is 0%. Cumulative default rate means that the default rate from a previous year is added to the following year’s defaults (when you look at year 10 it is the sum of all defaults from the previous 10 years.) The chart is compiled by rating category.Īverage Cumulative Default Rate of Moody’s-rated Municipal Bonds – 1970-2009: The following is chart from Moody’s on the 10-year cumulative default rates of all municipal bonds. But compared to general obligation municipal bonds, the vast majority of municipal defaults result from revenue bonds. It is difficult to paint revenue bonds with a broad brush in terms of risk. ![]() If it is not rated, do not buy it unless you have significant expertise on how to value the bonds. Default Counts By Sale Purpose, 1970-2011Īlso, be advised that the above data applies to bond issues rated by Moody’s. ![]() There are over 80,000 issuers eliminating a few problem categories of issuers from your investing consideration will not limit your choice in any material way. This gives us an easy rule to work with: Avoid hospital/healthcare-related bonds and avoid multi-family housing projects. When issuers such as hospitals and housing projects default on bonds, the amount recovered also tends to be much lower than for general obligation bonds. The vast majority of the bond defaults occured in the healthcare and housing sectors. Of the 71 defaults, 5 of the defaults were on general obligation debt. Out of thousands of bond issues rated by Moody’s over this time period, there have been a total of 71 bond defaults over the past 41 years. In this report, Moody’s looked at every single bond default on municipal bonds rated by Moody’s since 1970. The research that we are going to reference is a recent report from Moody’s analyzing defaults from 1970-2011. It will help you to know the history of defaults over the past 40 years. As someone interested in buying municipal bonds, safety is and should be your paramount concern. ![]()
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