Corporate & Securities Law

Municipal bonds, long viewed as a safe and predicable investment, are beginning to worry a growing number of analysts, financial planners and investors amid doubts about the ability of state and local governments to pay their obligations. 

Municipal bonds (also known as ?Munis?) have long been considered an important part of many investors? portfolios due to their historically low default rate, predicable low-single digit returns and tax-free status. 

However, over the past few years municipal bonds have been among the worst performing sectors of the overall debt market, with the average municipal bond fund losing almost 10%.  Certain bond rating agencies such as Moody?s have lowered their outlook for the debt of local governments.   Investors echoed these concerns as municipal bond funds recently saw the highest number of withdrawals since 1992.

The cause of this risk and volatility in the municipal bond market can be attributed to the recent recession and financial crisis.   As unemployment rates soared and sales tax revenue plummeted, the municipal bond market began to experience volatility.  Also contributing to this volatility were falling property values and a record number of foreclosures.   This significantly impacted real estate assessments and taxes, which can account for as much as 75% of the total revenue for state and local governments. 

To compound matters, while state and local governments saw a sharp decline in their tax revenue, their expenditures for infrastructure and pension plans, as well their obligation to repay bondholders, was left unchanged.  Many municipalities and states (including California, New York, Florida, Indiana, Illinois, Michigan, Ohio, West Virginia, Rhode Island, and Oklahoma have suffered from this volatility in the municipal bond market. 

And as a result of this recent uncertainty, risk and volatility in the municipal bond market, investors should understand the risks involved in investing in municipal bonds and carefully examine whether or not such an investment makes sense in light of their investment objectives. 

Investors who have lost money investing in a municipal bond or in a municipal bond fund may be able to recover those losses in arbitration.  Contact Jim Eccleston at the Eccleston Law Offices at 312-332-0000 for more information.