Professional Framework for Analyzing Municipal Bond Quality
Municipal bonds remain a cornerstone of conservative investment portfolios, prized for their tax-advantaged income and perceived safety. Yet history shows even 'AAA-rated' bonds can carry hidden risks—from pension liabilities to revenue shortfalls—that ratings agencies often miss.
The 12-point checklist distills institutional-grade analysis into actionable steps: examining debt service coverage ratios, evaluating revenue diversification, scrutinizing management quality, and stress-testing against economic downturns. It reveals why Detroit's bonds traded at par until weeks before bankruptcy, and how Puerto Rico's debt crisis caught most investors off guard.
Key red flags include overreliance on single revenue sources, inconsistent financial reporting, and political interference in fiscal management. The framework emphasizes forward-looking indicators rather than backward-looking ratings—a critical distinction after high-profile failures like Jefferson County's sewer debt debacle.
