Muni Bond Defaults: Historically Low!

The chances of muni bond defaults are still relatively low, despite what you may be hearing from the alarmists. While it may be true that municipal bond defaults were on the rise during the lowest points of the nation’s economic recession, few cities have actually filed for bankruptcy, and we’ve still yet to have a single instance of an entire state doing so.

Municipal Bond Defaults Compared to Junk Bonds

One of the many reasons that municipal bonds are considered a safe investment is the fact that they are closely monitored by the municipalities, which have the ability to raise taxes in order to ensure that bonds are repaid. Moreover, municipal bonds have also become increasingly popular, because of their tax-free benefits. Unlike municipal bonds, corporate bonds are not tax-free, and the muni bond yields are often much more consistent and have higher interest.

More Muni Bond Defaults? Is the Market in Danger?

Despite municipal bond defaults being historically low, there are some notable figures in the media that have expressed their concern over the possibility of a bleak future for the muni market, due to unemployment and foreclosure rates being very high, in addition to the piling deficits that all levels of government are facing. Indeed, the fear of muni bond risk is hardly unwarranted.

However, there are signs that the market can still be looked to as a safe harbor for investors with minimal risk for municipal bond defaults. So far, this year, there has been about $1 billion in debt pertaining to muni bond defaults. In past years, the debt has been drastically higher, illustrating how rare an occurrence defaults actually are. Fortunately, the dire predictions many have had for munis hasn’t done much to negatively impact bond pricing, and investors can always sell off their bonds when the going gets rough, with minimal consequences.

Municipal bond defaults are still rare, and the reality is that investors by and large love muni bonds for not only their yields, but also because they are exempt from nearly all manner of taxation – something that’s never going to change. Ultimately, high grade bonds are still safe, sound investments; however, to separate the ripe apples from the sour ones requires personal research and bond analysis. Fortunately, BondView.com has a full suite of (mostly) free features that allow investors to look up bonds and assess their prices and yields, ensuring you won’t be caught unawares in the rare event of muni bond defaults.