The Pennsylvania State Capital of Harrisburg recently filed for municipal bankruptcy. Total defaults in the municipal bond market for this year stand at $511 million. Keep in mind that 99.97% of all the Aaa-and Aa-rated municipal bonds have generated coupon payments and redemptions as promised over the past 40 years without a single missed or even late payment. We have had only 54 defaults since 1970 out of more than one million outstanding issues.
Defaults of the highest-rated issues are rare - - but as we have seen with our housing mess, low-risk does not mean riskless. Transparency has always been an issue in the municipal bond market. Now it is possible to do extensive background research into an issuer on your own. The Municipal Securities Rulemaking Board, the obsure regulator of municipal bonds, has created a system that allows for more transparency. The Web service, called EMMA (emma.msrb.org), permits any investor to see filings like disclosure documents from the issuer and pricing information. Just type in the name of the bond or its unique Cusip number and you can gain access to a wealth of data on the bond you are considering.
For additional information - - see John Wasik's article in the October 19, 2011 issue of The New York Times (In Uncertain Times, Municipal Bonds Call for Caution).
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