TAXF - 5 Reasons Municipals Have Rarely Defaulted

2023-05-02 01:25:00 ET

Summary

• The two principal types of municipal debt, general obligation and revenue, have traits that better equip them to deliver steady cash flows.
• Municipalities’ power to tax or charge for public services translates into a reliable revenue engine that yields dependable, quality cash flows.
• In a recession, cash is king, and states today have record-level cash reserves - thanks to mandated reserves requirements.
• Municipal bonds’ repayment structures are typically like those of home mortgages - scheduled payments include a mix of interest and principal repayment.
• Muni issuers’ promise to pay bondholders is exceptionally strong because most muni bonds support services essential to the public good.

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