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Why Fears About Municipal Credit are Overblown

48 Pages Posted: 10 May 2011 Last revised: 21 Jun 2011

Daniel Bergstresser

Harvard Business School

Randolph B. Cohen

Harvard Business School - Finance Unit

Date Written: April 30, 2011

Abstract

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

Suggested Citation

Bergstresser, Daniel and Cohen, Randolph B., Why Fears About Municipal Credit are Overblown (April 30, 2011). Harvard Business School Finance Working Paper No. 1836678. Available at SSRN: https://ssrn.com/abstract=1836678 or http://dx.doi.org/10.2139/ssrn.1836678

Daniel B. Bergstresser (Contact Author)

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)

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