Higher interest rates and stress in the U.S. municipal market may boost gains for bond insurers, which are positioned to benefit from high levels of muni refundings in the next two years, Standard and Poor's said in a report Tuesday.

The need for protection against municipal defaults may lead to more demand for financial guarantees, even as stress in the legacy bond insurers' public finance exposures puts pressure on the companies, S&P said in its analysis. Continuing high levels of refundings in bond insurers' portfolios may also lead to accelerated growth in capital.

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