Municipal Bond Risk Ratings

Thesis Statement In recent years, the legitimacy of bond ratings given by top rating agencies has been under extreme scrutiny by the general public and the government. The faith and trust that the public puts into credit rating agencies such as Standard & Poor's, Moody's, and Fitch is based on the notion that they will publically assign unbiased risk ratings which truly reflect the creditworthiness of thousands of municipalities. Since creditworthiness is an unobservable variable, it often appears that the determinants behind these municipal bond ratings are undecipherable. However, through the use of a range of economic, financial, fiscal, and demographic variables built into a complex econometric model, municipal bond ratings may be explained and the future of these ratings may be more effectively predicted.