Why would you accept the same yield on a Puerto Rican insured bond
as on Florida insured bond
This $353 million default on an insured bond
issue increased uncertainty in the municipal bond markets and caused insurers to tighten their bond quality underwriting standards for healthcare issues (Carpenter et al.
Interest savings can be determined by subtracting the average yield for a bond for a given credit rating and maturity from that of an insured bond
of the same maturity.
Hsueh and Liu's hypothesis is: "If the intrinsic default risk of an insured bond
is still priced by investors, the null hypothesis that complete bond insurance acts as a valid signal in the municipal bond market is rejected".
It has also foraged in the realm of double-A rated bonds, which are one rank below triple-A and produce lower premiums than the typical insured bond
, which is in the range of single-A to triple-B.
The underlying probability of default on insured bond
issues does not go away with the purchase of complete insurance coverage -- it simple shifts to the insurer who has its own default risk.
I think that the premium is large for an insured bond
,'' said William Fitzgerald, a portfolio manager at John Nuveen & Co.
While insured bonds
accounted for more than half of the market in 2005, just 4 percent of muni issues were insured in the first half of 2012.
The new policy offers issuers the ability to achieve higher foreign currency ratings from ratings agencies on the insured bonds
One alternative involves placing the money into AAA-rated insured bonds
producing tax-exempt interest of 7%, while the other alternative is the purchase of GNMA bonds producing taxable interest of 9.
The safest municipals are insured bonds
, those backed by one of several AAA-rated insurance companies.
To avoid being a victim, look for insured bonds
, backed by one of several AAA-rated insurance companies, such as Ambac Indemnity Corp.