Muni Bond News: Political Risk

by PL

The Wall Street Journal (March 30) has a column from Richard Ravitz (former NY Lt. Governor who was influential in dealing with New York City’s financial crisis) regarding the fiscal problems in Chicago and the upcoming election. The situation in Chicago is a good reminder that investors who hold (or are considering) municipal bonds need to evaluate and monitor the political risk associated with the bond issuer. Political risk does not just mean what the current politicians are saying, but includes the “mood” of the taxpayers / ratepayers and “baked in” structural taxing, borrowing or spending plans. Evaluating and pricing political risk should be a part of the credit evaluation process.  See my comments on Credit Risk / Political Risk here.  Subscribers can read the WSJ article here.