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The last instance of such a default took place during the Great Depression, in 1933, when the state of Arkansas defaulted on its highway bonds, which had long-lasting consequences for the state. [1] Current U.S. bankruptcy law, an area governed by federal law, does not allow a state to file for bankruptcy under the Bankruptcy Code. [2]
A municipal bond, commonly known as a muni, is a bond issued by state or local governments, or entities they create such as authorities and special districts. In the United States, interest income received by holders of municipal bonds is often, but not always, exempt from federal and state income taxation.
The first municipal bankruptcy legislation was enacted in 1934 during the Great Depression. [2] Although Congress attempted to draft the legislation so as not to interfere with the sovereign powers of the states guaranteed by the Tenth Amendment to the Constitution, the Supreme Court held the 1934 Act unconstitutional as an improper interference with the sovereignty of the states. [2]
Bond rating company Moody's (MCO) has downgraded the State of California's general obligation (known as "GO") bonds to Baa1, from a level of A2. The new rating is three notches above "junk" status.
Yet even as other parts of the bond market have started to show signs of losing ground, the municipal bond market has. Ever since the financial crisis, investors have looked to bonds to protect ...
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The historical default rate for municipal bonds is lower than that of corporate bonds. A potential misuse of historic default statistics "is to assume that historical average default rates represent the 'probability of default' of debt in a particular rating category. However, [...] default rates can vary significantly from one year to the next ...
Ambac, originally American Municipal Bond Assurance Corporation, was founded in 1971 in Milwaukee, Wisconsin as a subsidiary of MGIC Investment Corp. [7] to insure the principal and interest of municipal bonds against default. In 1985, Citibank (the principal subsidiary of Citicorp) acquired majority control of Ambac Inc., parent company of AMBAC.