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Chart: Why revenue bonds could be a missed opportunity

#chartonthego Nov 23, 2018
Catherine Stienstra, Head of Municipal Investments

This #chartonthego shows municipal bond investors reasons to look beyond general obligation bonds

The housing and hospital sectors can offer higher yield and risk-adjusted returns

 

  • General obligation (GO) bonds versus revenue bonds: GO bonds are backed by the full faith and credit of the issuing municipality, and they can use all available resources to repay the debt, including raising taxes. Revenue bonds repay bondholders using revenue generated from specific projects.
  • Revenue bonds could be a missed opportunity. Several high-profile municipalities have recovered from bankruptcy by making cuts to bondholders. Despite this, investors’ persistent demand for GOs keeps their yields down. Revenue bonds represent over 65% of the municipal market and often trade at a lower price and higher yield than GO bonds. This gives investors who can research the details of each bond an opportunity to earn more income and improve risk-adjusted returns — particularly in the housing, hospital and other higher yielding revenue sectors.

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The Bloomberg Barclays Municipal Bond Index is an unmanaged index that is considered representative of the broad market for investment grade, tax-exempt bonds with a maturity of at least one year. It is not possible to invest directly in an index.

Catherine Stienstra

Catherine Stienstra

Head of Municipal Investments