Why is credit analysis such a crucial element for municipal bond investing in the New Normal?
Fields: Credit vigilance will likely be more important in the New Normal than in years past. Historically, the municipal market was fairly homogeneous. According to Thompson Financial, in the last few years prior to the crisis more than 50% of the bonds were insured by a third-party wrapper (insurer) that had AAA ratings. Many retail investors and financial advisors became comfortable picking insured bonds with the highest yields, showing less concern with their underlying credit quality. Now, with the downfall of the monoline bond insurance companies, the market has become much more stratified, with AAA ratings no longer the norm. We feel credit analysis to determine the characteristics and credit quality of each issue is now imperative, due to credit stress in the market and the limited insurance available should a credit concern or event arise. This means the municipal bond market now appears to be trading more like a credit market than a rates market, which historically had been th
