Not all General Obligations Are Created Equal: A Commentary

21 Pages Posted: 4 Jun 2021

See all articles by Dario Cestau

Dario Cestau

IE Business School, IE University

Date Written: June 3, 2021


We document a comprehensive new classification of the legal structures backing municipal bonds and the effects that different legal features have on bond yields. It is a well-documented fact that investors rely on credit ratings to determine the credit risk of municipal bonds. However, rating agencies do not fully factor in the legal structures backing the bonds because measuring and testing the effects of said legal structures is inherently onerous. Since the price of risk is unusually high in this market, these flaws have important effects on yields.

Keywords: Municipal bonds, credit ratings, rating agencies, bond yields, general obligations, legal security, state law

JEL Classification: G12, G24, H74, K22, K34

Suggested Citation

Cestau, Dario, Not all General Obligations Are Created Equal: A Commentary (June 3, 2021). Available at SSRN: or

Dario Cestau (Contact Author)

IE Business School, IE University ( email )

Calle Maria de Molina 12, Bajo
Madrid, Madrid 28006

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