Debt Management

The Contradiction of Fewer Credit Ratings

Image from GFR

It’s often said that municipal bonds are like snowflakes—from a distance, they all look the same, but up close, no two are alike. They’re backed by many different revenue streams and governed by an enormous variety of fiscal policies, management practices, and legal parameters. That’s why municipal credit ratings are so important. They distill that variation into a simple, intuitive measure of the likelihood that bond investors will be repaid. They bring some comparability and structure to a market that’s often fragmented, idiosyncratic, and opaque.

Given those market features, it’s odd that the number of state and local bond ratings has fallen steadily since the Great Recession.