Editing Municipal bond (section)

===Default risk, credit ratings and insurance===
{{Main article|Credit risk}}
{{See also|Puerto Rican government-debt crisis|Detroit bankruptcy}}
Default risk is a measure of the possibility that the issuer will fail to make all interest and principal payments, on time and in full. It is among the risks evaluated by a [[rating agency]], which assigns a credit rating to the bond. Credit ratings are generally the starting point buyers use when deciding how much to pay for a municipal bond.<ref>{{cite book |title=Feldstein and Fabozzi op cit |page=184}}</ref>

Historical default rates have been lower in the municipal sector than in the corporate market.<ref>{{cite web|url=http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=110_cong_reports&docid=f:hr835.110|title=House Report 110-835 - MUNICIPAL BOND FAIRNESS ACT|access-date=18 October 2014}}</ref> This may be due in part to the fact that some municipals are backed by state and local government power to tax, or revenue from public utilities. 
However, sharp drops in property valuations (as in the [[Subprime mortgage crisis|2009 mortgage crisis]]) can strain state and local finances, potentially creating municipal defaults. Harrisburg, PA, when faced with falling revenues, skipped several bond payments on a municipal waste to energy incinerator. The prospect of municipal bankruptcy was raised by the Controller of Harrisburg, although it was opposed by Harrisburg's mayor.<ref>{{Cite web |url=http://www.marksmarketanalysis.com/2010/09/harrisburg-to-weigh-hiring-bankruptcy.html |title=Mark's Market Analysis |access-date=2010-09-03 |archive-url=https://web.archive.org/web/20110714040221/http://www.marksmarketanalysis.com/2010/09/harrisburg-to-weigh-hiring-bankruptcy.html |archive-date=2011-07-14 |url-status=dead }}</ref>

Default risk to the investor can be greatly reduced through municipal bond insurance, which promises to pay interest and principal if the issuer does not do so.<ref>{{cite book |title=Feldstein and Fabozzi op cit |pages=180–181}}</ref>