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http://ssrn.com/abstract=1571627
 
 

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Financial Guarantors and the 2007-2009 Credit Crisis


Siddharth Bhaskar Shenai


Harvard Business School

Randolph B. Cohen


Harvard Business School - Finance Unit

Daniel Bergstresser


Harvard Business School

March 15, 2010

AFA 2011 Denver Meetings Paper

Abstract:     
More than half of the municipal bonds issued between 1995 and 2009 were sold with bond insurance. During the credit crisis the perceived credit quality of the financial guarantors fell, and yields on insured bonds exceeded yields on equivalent uninsured issues. It does not appear that either property and casualty insurers or open-end municipal mutual funds were dumping insured bonds; analysis of holdings data indicates that their propensity to sell bonds was unusually low for the issues insured by troubled insurers. At least on a bond-by-bond basis, the yield inversion phenomenon is also not explained by the rapid liquidation of Tender Option Bond (TOB) programs, which disproportionately held insured issues. Finally, during the recent crisis the insured bonds have become significantly less liquid than uninsured municipal debt.

Number of Pages in PDF File: 60

Keywords: Municipal bonds, financial guarantors

JEL Classification: G1

working papers series





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Date posted: March 17, 2010 ; Last revised: November 21, 2010

Suggested Citation

Shenai, Siddharth Bhaskar and Cohen, Randolph B. and Bergstresser, Daniel, Financial Guarantors and the 2007-2009 Credit Crisis (March 15, 2010). AFA 2011 Denver Meetings Paper. Available at SSRN: http://ssrn.com/abstract=1571627 or http://dx.doi.org/10.2139/ssrn.1571627

Contact Information

Siddharth Bhaskar Shenai
Harvard Business School ( email )
Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States
Randolph B. Cohen
Harvard Business School - Finance Unit ( email )
Boston, MA 02163
United States
617-495-6674 (Phone)
617-496-6592 (Fax)
Daniel B. Bergstresser (Contact Author)
Harvard Business School ( email )
Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States
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