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    Opportunities for insurers: US municipal bonds

    Opportunities for insurers: US municipal bonds

    04 November 2024 Fixed income

    US municipal bonds, or munis, are issued by states, cities, or local government bodies in the US, where payments are supported by either tax revenues or income streams from specific assets.

    They can offer a way to diversify from corporate bond holdings and can be attractive to the more risk conscious investors having had historically low default rates.

    The growing fully taxable format of the municipal bond market, generally trading at higher yields may find favour with non-US investors.

    US municipals and corporate issuer defaults within 10 years of issuance

      Municipals Global corporates
    AAA 0.00% 0.34%
    AA 0.02% 0.75%
    A 0.10% 1.90%
    BBB 1.05% 3.64%
    Investment grade 0.09% 2.23%
    Speculative grade (high yield)

    6.84%

    29.81%

    Source: Moody’s cumulative default rates by rating category, 1970-2022.

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