Your current web browser is outdated. For best viewing experience, please consider upgrading to the latest version.

Donation - Other Level

Please use the quantity box to donate any amount you wish. Sign Up to Donate

Contact Heather Mac Donald

Send a question or comment using the form below. This message may be routed through support staff.

Email Article

Password Reset Request

Register


Add a topic or expert to your feed.

Following

Follow Experts & Topics

Stay on top of our work by selecting topics and experts of interest.

Experts
Topics
Project
On The Ground
ERROR
Main Error Mesage Here
More detailed message would go here to provide context for the user and how to proceed
ERROR
Main Error Mesage Here
More detailed message would go here to provide context for the user and how to proceed

Manhattan Institute

search
Close Nav
Share this issue_brief on Close

Evaluating States' Credit with Bond Yields

issue brief

Evaluating States' Credit with Bond Yields

By Josh Barro September 28, 2010
EconomicsOther

States continue to struggle through their worst budget crises in recent memory. Most states have seen red ink for the last three years, with total state budget gaps estimated at $96 billion for Fiscal Year 2011 (which started in July) and $72 billion for Fiscal Year 2012. With no end in sight to state budget woes, some bond investors are reasonably starting to worry about default. How likely is it that states will default on their bond obligations? And which states should be of greatest concern?

Information from the municipal-bond markets shows that while some states are still able to borrow at low rates, spreads for California and Illinois indicate that they are considered to be at far greater risk of default.

Just as credit card companies offer the lowest rates to individuals with the best credit histories, investors in the bond market offer the most favorable financing terms to states that are the most creditworthy. We can use the interest rates that investors demand as a way to determine which states are most likely to keep paying the interest on their bonds and ultimately repay the principal.

READ FULL REPORT

Saved!
Close