How Can I Gauge the Risk in Municipal Bond Investing?
Municipal bonds are generally considered a low-risk investment. There is a high likelihood that the bond issuer will repay their debt. However, the element of risk is still present, if small. The following risk factors can be used to determine if a municipal bond investment is right for you: • Credit Risk This refers to the possibility that the bond issuer may be unable to pay interest on the bond, or the principal upon bond maturation. Moody’s Investors Service and Standard & Poor’s are rating agencies that rate the creditworthiness of a bond issuer. An AAA rating indicates an issuer with little or no credit risk. Ratings like “Ca,” “C,” “DD,” or “DDD” indicate a bond issuer in default or lacking creditworthiness. Bonds rated “BBB” or better are considered acceptable for investors who want to preserve their original investment.
