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How reliable are muni rating agencies?

Q

I enjoyed your article on bond insurance (“Muni bond Insurance Rises, Delighting Investors, Issuers”). I wonder, how reliable are bond ratings of issuers, i.e. how much digging, financial scrutiny and due diligence is done by the rating companies in establishing the creditworthiness of a municipal bond issuer and its ability to make interest payments?     

W.H., New York

A

James A. Klotz responds:

It might help to know that bond defaults by issuers with investment grade ratings have been less than one percent over the last 50 years.

Over the last 10 years, the default rate of investment grade munis is .09%.

 

Jan 26, 2024

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