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How vulnerable are insurance companies to a downturn in the municipal bond market?
As the U.S. economy remains weakened by the Covid-19 pandemic, concern persists for the health and resilience of the municipal bond market. Municipal bonds (muni bonds) are debt securities issued by state and local governments to raise money and are generally considered to be safe investments. However, the recent slowdown in economic activity due to Covid-19 created significant stress on state and local government budgets, leading to a heightened risk for municipal bond downgrades and possibly even defaults. In this Chicago Fed Letter, we examine to what extent property and casualty (P&C) and ...