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Harrisburg, Pa., will skip a $3.29 million payment on its general obligation refunding bonds, series D and F of 1997, according to a letter obtained by Dow Jones Newswires.
Clients and advisors have found themselves reaching for yield in this low return environment. After calculating the tax-equivalent yield, municipal bonds were some of the highest yielding investments. It is unfortunate that the trend of reaching for yield has ignored the risk associated with these investments. Municipalities do default. Governments do default.
Based upon this default, the risk premium for holding municipal debt obligations just went up. As with a previous post, it is imperative to be able to dynamically adapt your portfolio structure.