Since the onset of the Great Recession, 24 bonds that were rated, intended to finance essential services, and backed by tax revenues, have defaulted.

Among Moody’s rated municipal bonds, there have been only 3 school district defaults and two utility defaults since 1971.

Bond insurance was present in at least 5 of the 8 most significant defaults since 2009.

Breckinridge Capital Advisors, quoting Municipal Market Advisors, Default Trends, 5 June 2012.

A while ago I was naïvely wondering how you would compare financial risks in investing in sovereign bonds, municipal bonds, corporate bonds, versus equity risk in public stock markets.

Spurred by wondering why anyone would lend to the United States Treasury when the rates are so, so low. (That question came from reading op-eds about austerity, fiscal cliffs, and so on—where someone inevitably brings up that the US can borrow for free so it shouldn’t worry about its short-term deficit. Keyword “bond market vigilantes”) I mean, couldn’t you get much more money lending to pretty much anywhere else? Answer, found.

(although probably part of the answer is that US TSY, Bunds, and Gilts can soak up huge huge quantities, and there’s no “bank” where you can put a few hundred billion dollars.)


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