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The Untold Story of Municipal Bond Defaults

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Abstract

In our recent post on the state and local sector, we argued that structural problems in state and local budgets were exacerbated by the recession and would likely restrain the sector?s growth for years to come. The last couple of years have witnessed threatened or actual defaults in a diversity of places, ranging from Jefferson County, Alabama, to Harrisburg, Pennsylvania, to Stockton, California. But do these events point to a wave of future defaults by municipal borrowers? History?at least the history that most of us know?would seem to say no. But the municipal bond market is complex and defaults happen much more frequently than most casual observers are aware. This post describes the market and its risks.

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  • Jason Appleson & Andrew F. Haughwout & Eric Parsons, 2012. "The Untold Story of Municipal Bond Defaults," Liberty Street Economics 20120815, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednls:86825
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    File URL: https://libertystreeteconomics.newyorkfed.org/2012/08/the-untold-story-of-municipal-bond-defaults.html
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    Cited by:

    1. Lang (Kate) Yang & Yulianti Abbas, 2020. "General‐Purpose Local Government Defaults: Type, Trend, and Impact," Public Budgeting & Finance, Wiley Blackwell, vol. 40(4), pages 62-85, December.
    2. Bordo, Michael D. & Duca, John V., 2023. "How the new fed municipal bond facility capped municipal-treasury yield spreads in the Covid-19 recession," Journal of the Japanese and International Economies, Elsevier, vol. 67(C).

    More about this item

    Keywords

    municipal bonds; defaults;

    JEL classification:

    • D1 - Microeconomics - - Household Behavior
    • H00 - Public Economics - - General - - - General

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