First came Central Falls, R.I., which filed for bankruptcy Monday. Then the headliner talk this week that Jefferson County in Alabama could end up filing the country's largest municipal bankruptcy when it meets Aug. 12. All together, there have been five municipal bankruptcies this year.

Municipal-bond markets remain a relative safe haven for investors. Yesterday, after the stock market took its worst nosedive since the depths of the financial crisis, investors flooded into municipal bonds.

But municipal bankruptcies have the potential to rattle the municipal-bond market in several ways. Investors may be prone to worry about a contagion effect from municipal bonds that are in hot water, casting doubt on the financial soundness of surrounding cities, counties or state. A default also translates into higher costs throughout the market, even though investors do still get paid.

"It is important to remember that only four to six make headlines, but 45,000 others are doing OK," Lynnette Kelly Hotchkiss, executive director of the Municipal Securities Regulation Board, tells DailyFinance. "Remember that every issuer is unique and needs to be analyzed on its own merit."

The board runs a muni-bond website, called EMMA, which allows investors to search for pricing information for bond trades, as well as official disclosures about material events that could impact bond prices. It's the only resource that makes the same information that retail investors use available to mom-and-pop investors.

Increase your money and finance knowledge from home

Basics Of The Stock Market

Stock Market 101 - everything you need to know but were afraid to ask!

View Course »

Reading a Stock Quote

Learn to read the ingredients of a stock.

View Course »

Add a Comment

*0 / 3000 Character Maximum

4 Comments

Filter by:
stlowlife2

In the old days it was easy to regonize "Frank and Jesse", Butch and Sundace. Today they wear three peice suits, dipolma's in econimics on the suits, go to church, sit in the front rows, and just plain screw everyone out of their money. When they get real good at that, they go to Washington D. C.

August 05 2011 at 3:36 PM Report abuse +1 rate up rate down Reply
Jay

What it means is that by declaring bancrupcy they are going to take your money and run!

August 05 2011 at 12:35 PM Report abuse +1 rate up rate down Reply
1 reply to Jay's comment
LEE Resolution

where does a municipality run to, bubba ?

August 05 2011 at 5:16 PM Report abuse +1 rate up rate down Reply
sunelpru

GOODBYE PENSIONS.

August 05 2011 at 11:58 AM Report abuse +2 rate up rate down Reply