An examination of the yield spread between insured and uninsured debt

Currently, municipal bonds insured by major insurance firms receive the highest credit rating from rating agencies. The interest rates on regular triple‐A municipal bonds, however, have been persistently below those of insured bond issues. The yield spread between insured and uninsured triple‐A bonds in the tax‐exempt market is examined here, and it is shown that the yield spread may be attributable to split ratings and default‐related risks.