Why Fears About Municipal Credit are Overblown
48 Pages Posted: 10 May 2011 Last revised: 21 Jun 2011
Date Written: April 30, 2011
Highly publicized predictions of 50-100 municipal defaults have caused anxiety among municipal bond investors. While there is some chance that negative investor sentiment will lead to further spread widening, the probability of the kind of widespread default that would be required to justify current municipal bond yields is low. In this paper we document the reasons why the fears of widespread municipal default during the current recession are overblown.
Keywords: Municipal bonds
JEL Classification: H74
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