Pension funding bonds, also known as pension obligation bonds, rarely improve the credit quality of the state or the local government that issues them, says Moody's Investors Service in a report.

Whether the bonds will have either a neutral or negative impact on the government's credit quality at the time of issuance depends on factors that include the use of the proceeds, the relative size of the bond issue, and the level of future budget savings that government managers assume from the issuance.

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