Nov 18 (Reuters) – Attention nervous municipal bond
investors: You’ll be pleased to know that most U.S. issuers are
not like Harrisburg, Pennsylvania or Jefferson County, Alabama.
Nor are they in the same tailspin as Greece, Italy or Spain.
And there’s little chance that the latest Italian crisis
will have any impact on the highest-rated U.S. muni bonds. That
doesn’t mean you shouldn’t be careful. You still need to do
some due diligence before plunging into these tax-free bonds
and related funds.
Unlike Europe, U.S. states and municipalities appear to be
on the slow road to recovery. According to the National Council
of State Legislatures, “state lawmakers have faced and
largely addressed budget gaps totaling $510.5 billion. And
though additional budget gaps loom, the magnitude and number of
states projecting them has fallen considerably.”
A recent report by the Kroll Bond Rating Agency is also
optimistic. The agency doesn’t expect a “sharp increase in
defaults over the foreseeable future.”
Of course, there are still fiscal basket cases like
Illinois and California, and some municipalities stung by the
housing bust may still file for bankruptcy in the months ahead.
But they are mostly outliers. The default rate for highly-rated
munis is still extremely low.