The Hidden Calculus of Municipal Bond Selection
State General Obligation bonds maintain a safety edge over even top-tier corporate debt, creating a bedrock for fixed-income portfolios. Yet beneath this stability lies a bifurcated market where local issuers present both opportunity and peril.
The transparency gap proves stark—while state entities uphold rigorous disclosure standards, nearly 40% of local revenue bonds operate with subpar financial reporting. This opacity correlates strongly with liquidity risk and credit deterioration.
Tax traps lurk in the fine print. Private Activity Bonds from local projects frequently trigger Alternative Minimum Tax liabilities, eroding the very tax advantages that draw investors to munis. The AMT exposure remains disproportionately concentrated in smaller municipal issuers.
