Data as of July 25, 2013
What Municipalities are Higher Risk?
The bankruptcy of the City of Detroit has raised questions about what other municipalities might be the next to focus on. In general, bonds with higher yields are riskier than bonds with lower yields. Using bond yields as the sole variable, the following general obligation municipal bond issuers have the highest yielding bond issues* in the S&P Municipal Bond Index:
Maverick County, TX
Central Falls, RI
Northern Mariana Islands
- The average yield to worst for investment grade municipal bonds is 3.12% (S&P National AMT-Free Municipal Bond Index). The yields of the bonds from these issuers range from 7% to over 9.25%.
- The S&P Municipal Bond Index is a broad benchmark index that tracks over 70,000 bond issues from over 20,000 municipal bond offerings representing over $1.4 trillion in par value.
- None of these bond issues are included in the S&P National AMT-Free Municipal Bond Index which tracks only investment grade bonds.
*Review focused on bonds issued by and are the general obligation of counties and cities. No district, special tax or land backed bonds were reviewed. Only bonds that have not previously defaulted on principal and or interest are listed.
- The high profile default of the City of Detroit along with heavy fund outflows have made the summer of 2013 a hard one for the municipal bond market.
- Investment grade municipal bonds tracked in the S&P National AMT-Free Municipal Bond Index saw yields rise by 38 bps this month driving bond prices down and recording a negative monthly return of 1.54%. By comparison, bonds tracked in the S&P U.S. Issued Investment Grade Corporate bond Index have seen yields come down by 6 bps holding returns in positive territory.
- High yield municipal bonds tracked in the S&P Municipal Bond High Yield Index recorded yields rising by 36 bps this month driving bond prices down and recording a negative monthly return of 2.65%. High yield corporate bonds tracked in the S&P U.S. Issued High Yield Corporate Bond Index have seen yields come down and prices rise driving a positive 1.83% return.