![]() dollar record for defaults: $31.15 billion, a 15% increase from 2016. Due in large part to Puerto Rico's ongoing financial woes, 2017 set a U.S. Of the 10 defaults that occurred in 2017, entities associated with the Commonwealth of Puerto Rico accounted for seven. Muni Defaults Concentrated in Puerto Rico in 2017 Still, default volumes have grown, with 55 of the 113 defaults since 1970 occurring after 2007. ![]() This enables municipalities to "kick the can down the road" and delay a crisis, even taking on more debt where corporate issuers might be unable to do so. The report observes that municipal defaults have been notably rare throughout the study period, even in times of financial stress, thanks to a defining feature of state and local governments: delinked revenues and expenditures. In this context, it is perhaps unsurprising that even in a year with a relatively elevated number of defaults, there were only ten in all of 2017 out of many thousands of issues. The five-year all-rated cumulative default rate (CDR) on municipal bonds throughout the study period (1970-2017) remained quite low, at just 0.09%, especially when compared to the 6.7% CDR of global corporates over the same time period. Muni Bond Defaults and Bankruptcies Remain Rare The report also found that greater stability was demonstrated by A-and-above rated munis when compared to like-rated global corporates. "In fact," the authors observe, "rating drift has been mildly positive since late-2015." The trend had been generally negative since mid-2008, since reaching a low of -0.082 notches per credit in 2012. For the second year running, muni bond rating upgrades have outweighed downgrades, resulting in a positive rating drift 1 overall of 0.017 notches per credit by the end of 2017. Nearly a decade after the Great Recession (2007-2009), the municipal bond sector is now stable and recovering, aided in part by growth and economic recovery in many regions of the U.S. ![]() To save you the hassle of poring through a 100-page document, we highlight three takeaways from this year's report. According to Moody's, this recalculation has rendered key metrics more meaningful and offered greater explanatory power, enabling more powerful inferences regarding long-term trends. Using an algorithm, the authors were able to bring the historical credit ratings in line with Moody's 2010 Global Scale Recalibration, which affected most of the main default and performance metrics. The latest report also featured a significant update to Moody's entire dataset extending back to 1970. Second, municipal bankruptcies and defaults remain extremely rare, even amidst headline-grabbing defaults by Puerto Rican entities. First, muni bonds continued to be highly rated in 2017, with upgrades narrowly outpacing downgrades for a second year running. ![]() Moody's Investors Service's recently released annual municipal bond market snapshot, US Municipal Bond Defaults and Recoveries, 1970-2017, with updates through 2017, reaffirms two hallmark benefits that muni bonds continue to offer. ![]()
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