public finance sector is notable for infrequent defaults and extraordinary stability," it does see changes on the horizon for the sector. Perhaps not surprisingly, most of the competitive enterprise defaults occurred during the period 2004-2008 as the housing sector became stressed.Īlthough the report observes that "the U.S. Of these, 72.8% were accounted for by competitive enterprises (revenue-supported healthcare, housing, and higher education), 20.4% by general governments, and just 6.8% by municipal utilities. Out of the many thousands of rated muni bonds issued since 1970, there have been just 103 defaults. Anything lower than a Baa rating is considered a non-investment-grade or high-yield bond. The Moody's rating scale is as follows, from excellent (high grade) to poor (including default): Aaa to C, with intermediate ratings offered at each level between Aa and Caa. Historical information is not indicative of future results current data may differ from data quoted. Municipal Bond Defaults and Recoveries, 1970-2016" Most recent annual study published July 2016, based on data from 1970-2016.
*Average cumulative rates from 1970-2016 (annualized). Municipal Default Rates Lower Than Global Corporates for All Broad CategoriesĪverage Cumulative Default Rates, 1970-2016, Municipals vs. For Moody's, this trend lends credence to the idea that "most credits are recovering or are stable in the aftermath of the recession." However, there are still some that "face steep credit challenges." Muni Defaults and Bankruptcies Remain Quite Rareĭefaults in the muni space are still rarities when viewed in the context of the larger bond market, and global corporates in particular. Although the change is slight, this marks a turning point for muni bond rating drift, as "notch-weighted downgrades have outpaced upgrades for every monthly cohort since mid-2008," with the trend only reversing quite recently. Overall, Moody's bond ratings for the municipal sector skewed slightly more towards notch-weighted 3 "upgrades" than "downgrades" in 2016, in an environment that continued to see elevated downgrade levels. Muni Bond Ratings Drifted More Positively in 2016 To save you the trouble of diving into the 101-page document, we have identified three key takeaways. Most notably Moody's framework shifted from being security-based to being sector-focused, to better capture "inherent credit distinctions and ratings volatility in the municipal sector." The upshot of this is that the Moody's universe is now split into three broad sectors: 1) General Governments, 2) Municipal Utilities, and 3) Competitive Enterprises. The latest report features two changes from prior years. municipal bonds for the 46-year period from 1970 through the end of 2016. The study encompasses data on all Moody's rated U.S. On June 27, 2017, Moody's released its updated annual default research report using 2016 figures. 2 Second, municipal bankruptcies and defaults remain rare. First, municipal credits remain highly rated with, in 2016, upgrades narrowly outpacing downgrades. Updated statistics from Moody's Investors Service 1 confirm two benefits muni bonds continue to provide.
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