It seems that you cannot pick up a paper or turn on the news without encountering a story about the financial struggles of many state and local governments. These are clearly challenging times for municipalities as tax bases and revenues shrink.
We are fascinated by the significant “numbers” tossed about in these stories. Often some of the numbers are given more attention than others. We thought a summary of some of these indicators might be helpful. So, this year at your holiday cocktail party, why not get the conversation started with some fascinating municipal credit market “numbers”.
- $3 trillion: size of outstanding debt in the municipal bond market
- $3 trillion: possible size of future unfunded public-pension liabilities
- $1.4 trillion: US Government deficit in 2009
- $457 billion: amount of unfunded public-pension liabilities in the U.S. in 2010
- $83.9 billion: projected US states total budget deficit for fy2011
- 1.5 million: approx. number of bankruptcy filings by corporations and individuals for year ending 3/31/09
- 60,000: approx. number of state and local governments, districts, authorities and other issuers in the municipal market
- 500: approx. number of Chapter 9 (municipal bankruptcy) filings since 1934
- .3%: default rate on all municipal bonds in 2008 and 2009
- .2%: the percent of municipal bonds currently in default based on $ value
- .03%: default rate on investment-grade municipal debt over the past 40 years
- 0: default rate from 1970-2000 among general-obligation and essential-service revenue municipal bonds
(All figures are approximate)
What always fascinates us is how differences in interpreting facts creates a diversity in constructing opinions. Two respected analysts or investment managers can look at the same numbers and walk away with completely different opinions. Is the large size of municipal debt more important or the low historical default rate?
These differences are what makes the world go round and why there is typically a buyer for every seller. Opposing views may not present much of an issue if you are choosing a new dishwasher, but can represent a significant challenge when making investment decisions.
There is certainly not enough space here to advocate for or against investments in the municipal bond sector. With over $1.1 billion in managed municipal assets, we have a significant interest in these markets. We believe the municipal bond market presents investment opportunities where quality research, security selection and risk mitigation can produce attractive after-tax returns.
Cheers and happy holiday conversations.