Municipal Bond Forum
On Don’t Lose Sleep Over Bond Insurers Woes cont’d #3
Q
If Fitch downgrades the bond insurers, how can there not be a large selloff of insured municipals? How do you expect the muni market to react to the bond insurers being downgraded?
A
James A. Klotz responds:
In your e-mail, you cite an article from the Lyndon LaRouche Political Action Committee. Our first thought is that you should find a more credible source for information regarding the municipal bond market.
The article attributes sensational comments to “one municipal bond market advisor,” which we consider to be reckless and irresponsible.
As we state in our most recent commentary: “Bond insurers are only compelled to pay principal and interest if the underlying borrower cannot do so. Remember, issuers in the municipal bond market almost invariably meet their payment obligations.”
Why then, would the downgrade of a AAA-insurer be a “crushing blow” to the municipal bond market, as the article states?
During this turbulent period, you may not want to hold a bond insurer’s stock, but the bonds will be fine.
Start here.
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