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Municipal Bonds – Unique Asset Class

  • Low Default Rate

    Municipal bonds have for a long time offered investors a safe Investment Vehicle. The 10 year cumulative default rate on municipal bonds was 0.04% between 1970 and 2000. By comparison, the 10-year default rate for corporate bonds over the same period of time was 9.83%. [Source: November 2002, Moody’s Investor’s Services.]

    Click For Table Showing Default Rates for Municipal vs. Corporate Bonds by Rating

  • High Recovery Rate

    Defaulted municipal bonds have a fairly high recovery rate of 68.33%. [Source: 2003, Fitch Findings.]

  • Large Market Size

    $2.67 Trillion as of 12/31/2008. [Source: Investingbonds.com]

  • Generally, liquid secondary market for sizeable offerings.

  • Largest owners of municipals bonds.

    High-net worth individuals, mutual funds, money market funds, property and casualty insurance companies and commercial banks. The 100 largest institutional holders represent approximately 35% of the entire municipal bond market. [Source: 2009, Thomson Reuters eMAXX]

  • Generally, High Grade Ratings

    (A-/A3 or better by S&P and Moody’s.)

  • Surety credit enhancement of interest and principal over an underlying rating.

  • Attractive yield curve for tax-free and taxable municipal bonds.

  • Attractive spreads over U.S. Treasury bonds (AAA Rated tax-free municipals.)

    1 year-194.949%; 5 year-113.567%; 10 year-107.915% [Source: November 2011, Bloomberg.]

    Click For Graph

  • Attractive spreads over U.S. Treasury bonds (AAA Rated taxable municipals.)

    1 year-200%; 5 year-200%; 10 year-175% [Source: November 2011, Bloomberg.]

  • Attractive spreads over U.S. Corporate bonds (AAA Rated tax-free municipals.)

    5 year-111%; 10 year-154% [Source: November 2011, Bloomberg.]


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