Financial Guarantors and the 2007-2009 Credit Crisis
60 Pages Posted: 17 Mar 2010 Last revised: 21 Nov 2010
Date Written: March 15, 2010
Abstract
More than half of the municipal bonds issued between 1995 and 2009 were sold with bond insurance. During the credit crisis the perceived credit quality of the financial guarantors fell, and yields on insured bonds exceeded yields on equivalent uninsured issues. It does not appear that either property and casualty insurers or open-end municipal mutual funds were dumping insured bonds; analysis of holdings data indicates that their propensity to sell bonds was unusually low for the issues insured by troubled insurers. At least on a bond-by-bond basis, the yield inversion phenomenon is also not explained by the rapid liquidation of Tender Option Bond (TOB) programs, which disproportionately held insured issues. Finally, during the recent crisis the insured bonds have become significantly less liquid than uninsured municipal debt.
Keywords: Municipal bonds, financial guarantors
JEL Classification: G1
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Underpricing and Market Power in Uniform Price Auctions
By Ilan Kremer and Kjell G. Nyborg
-
Underpricing and Market Power in Uniform Price Auctions
By Ilan Kremer and Kjell G. Nyborg
-
Flexible Estimation of Demand Schedules and Revenue Under Different Auction Formats
-
By Matti Keloharju, Kjell G. Nyborg, ...
-
Tilting the Supply Schedule to Enhance Competition in Uniform-Price Auctions
By Marco Licalzi and Alessandro Pavan
-
Underpricing in Discriminatory and Uniform-Price Treasury Auctions
-
Underpricing in Discriminatory and Uniform-Price Treasury Auctions
-
Auction Format Matters: Evidence on Bidding Behavior and Seller Revenue
-
Auctions: Theory and Possible Applications to Economies in Transition
By Robert Feldman and Rajnish Mehra