The Handbook of Municipal Bonds

CHAPTER 48

How to Analyze General Obligation Bonds

Sylvan G. Feldstein, Ph.D. Director, Investment Department Guardian Life Insurance Company of America

 

Terry J. Goode Head of Tax Exempt Research Wells Capital Management

 

 

 

In this chapter, the basic analytical issues are discussed in evaluating the credit quality of general obligation municipal bonds that are issued by states and local governments. General obligation bonds are secured by the pledge of the issuer’s taxing powers (limited or unlimited). More commonly the general obligation bonds of local governments are paid from ad valorem property taxes and other local general revenues.

It should be noted that there is no universally accepted theory of general obligation bond credit analysis. To a considerable extent it remains more an art than a science. This requires individual judgment and personal interpretation of a range of important factors. The following provides some simple, clear guidelines for the bond analyst to consider when reviewing a general obligation (GO) bond.

Information relating to the analysis of GO bonds may be grouped into four categories. They are:

1. The issuer’s debt structure and security for the GO bonds.

2. The issuer’s budgetary operations.

3. The issuer’s revenue structure.

4. The economy.

Terry Goode has coauthored this chapter for informational purposes only and it is not intended as an offer to sell or a solicitation of an offer to buy any security. The views expressed are based on the judgment ...