At the end of July, Moody’s Investors Service released its annual municipal bond market snapshot, US municipal bond defaults and recoveries, 1970-2019, with updates through 2019. The report continues to affirm two hallmark benefits offered by muni bonds. First, municipal defaults and bankruptcies remain rare overall, even though they may have become more common over the last 10 years. (There were no rated municipal defaults in 2019.) Second, muni bonds continued to be highly rated in 2019, with more issuers upgraded than downgraded. (According to Moody’s, however, as in 2018, the size of the downgrades, on average, was larger than the upgrades.)
An important “observation” noted once again in this year’s report was that over the 40-year study period: “[A]ny one default may only reflect the idiosyncrasies of that individual credit, and not be representative of any general sector trend.”
Municipal Bond Defaults and Bankruptcies Remain Rare
The report drew attention once more to the fundamental difference between municipal and corporate credits.
The five-year all-rated cumulative default rate (CDR) of municipal bonds throughout the study period (1970-2019) decreased a tiny bit to 0.08% (1970-2018: 0.10%) and remains very low. In comparison, the five-year CDR of global corporates is 6.7% over the same time period. There were neither any new rated municipal defaults in 2019, nor any new unrated defaults during the same period.
While there may not have been any new rated defaults in 2019, Moody’s noted that there were “some notable developments concerning default, bankruptcy and recovery,” not least in the context of