Current problems in the credit markets are now undercutting the short-term municipal market, as rising yields in variable-rate demand notes and auction rates and a handful of failed auctions show a market reeling from credit concerns and no longer protected by staunch triple-A rated bond insurance.

On the variable-rate demand side, observers say the problem begins with the conservative rating scale used by munis. Compared to the corporate scale, the municipal market has far fewer natural double- or triple-A rated issuers, despite the fact that munis have historic default rates far below those of corporate bonds.

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.