Worried about public pensions liabilities? Well, look away now.
In a report out Wednesday, The Center for Retirement Research at Boston College tried to isloate the factors that influence (1) the spreads on municipal bond yields, and (2) Moody’s rating of those bonds.
The researchers analysed 37,500 muni bonds issued between 2005 to 2009. Below are the results in chart-form.
(1) Impact on municipal bond yield spreads. The x-axis is the average spread between muni yields and treasuries issued at roughly the same time.
(2) Impact on Moody’s ratings. The x-axis is a measure of Moody’s average credit ratings, with +1.0 being a notch downgrade and -1.0 a notch upgrade.
The rub: longer-term factors such as dependency ratios and pension contributions (“percent of ARC paid”) appear to make little or no difference to yields and ratings.
As the authors conclude: “while rating agencies say they consider pensions, pension funding does not have a statistically significant effect on bond ratings.”
Though that may be changing, at last.
Related link:
Space, time and public pension black holes – FT Alphaville
A pause in the muni madness – FT Alphaville