Municipal Credit RatingsBond Instruments
Bond purchasers should carefully select issuers who can repay their debts since Municipal bond issuers cannot print currency. Issuers usually can only repay bonds via tax or project revenue. You must pay careful attention to municipal credit ratings.
Municipal credit ratings above BBB or Baa is an investment grade bond, meaning the issuer is likely to deliver payments. The higher the rating, the more stable the bonds issuer is considered by ratings agencies. Investment grade bonds are usually stable and unlikely to default. Investors are highly likely to purchase them in the secondary market if you want to unload the bond from your portfolio.
Municipal credit ratings below BB/Ba are junk bonds, which imply the issuer is financially unstable and closer to default. Some municipal bonds are not rated at all, which means credit ratings have no stance whatsoever on the issuer’s creditworthiness. Junk and unrated bond issuers are unknown factors when considering reimbursement. Since bondholders desire to be repaid, these bonds are typically illiquid on secondary markets. Investors in municipal bonds do not desire to buy the mere possibility of being repaid.
To help convince both primary and secondary market bond purchasers to buy their bond issues, many Municipal bonds come with insurance. The only way the investor will not be reimbursed is if both the issuer and insurance company defaults. If you want to ensure you will be repaid, selecting insured investment grade municipal bonds is the best option.
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