The point? Though this just speaks to state issuers, since the bottom of the investment grade range is BBB-, one should appreciate that the general quality of bonds appears very strong. As shown in the graph below, the average rating among all U.S. states is AA. Thus, in the context of a broadly diversified portfolio, the quality, in my opinion, represents a high likelihood of full repayment.
The next installment will more fully explore this thesis.
Source: S&P and First Southwest as of January 22, 2013.
James Colby is a portfolio manager and senior municipal strategist at Market Vectors ETFs.
*As of January 22, 2013, the full list of states with triple-A ratings from all three rating agencies includes: Alaska, Delaware, Georgia, Iowa, Maryland, Missouri, North Carolina, Utah and Virginia. The rating scales are as follows, from excellent (high-grade) to poor (including default) for Moody’s, S&P and Fitch: Aaa/AAA/AAA to C/D/D, with intermediate ratings offered at each level between. Anything lower than a Baa/BBB-/BBB- rating is considered a non-investment-grade, high-yield or junk bond.