Friday, June 13, 2008

Rating Municipal debt

Good news for the US Municipal Bond market - Moody's finally announces its decision to rate municipal bonds on the same scale it uses for corporate debt. It would be a significant change for the tradition-bound municipal bond market and could help to lower borrowing costs for some local governments during tougher economic times. It could also lead to less demand for bond insurance at a time when several big guarantors are faltering. (More on this here)

When are the rating agencies in India going to follow suit? If in the US, a uniform rating scale will help sustain a faltering Munis market, in India the same could break open its still-born Municipal debt market.

2 comments:

Tax Free Investing said...

There are two types of municipal bonds. The first are called general obligation (GO for short), and are backed by the issuer's ability to tax. General obligation bonds are issued to pay for projects such schools and sewer systems. Most investors consider general obligation bonds safer than their revenue counterparts; this is a misconception. This is considered to be the best way to invest money as they are tax free.

Bonds for You said...

How bonds work? Companies and governments issue bonds to fund their day-to-day operations or to finance specific projects. When you buy a bond, you are loaning your money for a certain period of time to the issuer. In return, bond holders get back the loan amount plus interest payments.