<p>Beyond The Rating: A Comparative Analysis Of A-Rated U.S. Taxable Municipal and U.S. Corporate Bonds</p> by Travis Lower :: SSRN

This study examines the yields of A-rated U.S. Taxable Municipal Bonds and A-rated U.S. Corporate Bonds issued between 2009 and 2023. While U.S. Taxable Municipal Bonds and U.S. Corporate Bonds share similar investor profiles and are rated by rating agencies using similar credit risk criteria, evidence suggests that U.S. Taxable Municipal Bonds may offer higher yields and lower default rates relative to U.S. Corporate bonds with similar durations. Using a subset of the broader U.S. Taxable Municipal universe, this research aims to quantify these differences by analyzing yields and risk-adjusted yields at issuance. Results from this study will provide fixed-income investors with evidence-based guidance on enhancing risk-adjusted return. The findings may also highlight potential gaps in the rating criterion used by credit rating agencies, suggesting areas where changes could improve the alignment of ratings with actual risk and return characteristics. This research contributes to the small body of academic research on taxable municipal bonds and lays the foundation for future research into this relatively new asset class.