According to Federal Reserve statistics, as of the end of the first quarter of this year, the U. S. municipal bond market consisted of $3.8 trillion of debt outstanding with retail investors owning 42 percent of the market. Life insurance companies, property and casualty insurers, banks, mutual funds and foreign buyers are also major holders of municipal bonds.
Municipal bonds have performed well as a class over a century of booms and busts. They came through the Great Depression with an extremely low default rate. General obligation municipal bonds (GOs) are backed by the full faith and credit and taxing power of a jurisdiction like a state or county or city and GOs with AAA ratings are typically viewed as second in safety to issues of the U. S. government. Municipal bonds issued to finance a project are classified as revenue bonds and are frequently backed just by the revenues of that project, such as a toll bridge.
U. S. states, counties, cities and school districts issue muni bonds to build schools, roads, bridges and other critical infrastructure needs. Municipal bonds are essential to a vibrant U. S. economy and maintaining modern infrastructure and schools across America.
This post was published at Wall Street On Parade on October 5, 2017.
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