1). What factors influence the demand for municipal debt? develop the steep positive slope of the municipal yield coil.
The primary feather factors affecting demand for municipal bonds be interest array volatility, valuees, and relatively low levels of default. Municipal bonds had traditionally been considered an effective castment vehicle for property casualty insurance companies and for individuals in graduate(prenominal) federal tax brackets. For that reason, face value yields on muni bonds are slackly below those of Treasuries given the net premium after-tax considerations. At the time of the case, the top borderline federal income tax point was over 50% (not including state and local taxes). In the days leading up to the case, both interest rates and the marginal tax rate had been very volatile. The top marginal tax rate at the time the portfolio had been purchased was 70%, it then pelt to 50% and was scheduled to drop further in the coming years.
Ratings are also a factor influencing the demand for municipal debt. Ratings are affected by issuing municipalitys stinting base, debt history, future capital requirements, etc. High ratings usually show the professionalism of a municipalitys administration and the quality of its control systems.
Investors era of liabilities and regulatory restriction on the quality of securities in which they could invest also influence the demand for municipal debt. Commercial banks generally purchased dead- to intermediate-term, general obligation municipal bonds. Property and casualty companies take the long term municipal bonds, exhibiting a preference for higher-yielding revenue enhancement bonds.
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The steep positive slope of the muni bond yield curve at the time of the case reflects high demand for mulct term muni bonds and decreased demand for LT munis requiring greater yields. This reflects market sectionalisation exhibiting a deep market with high investor demand for short term...If you want to get a full essay, order it on our website: Orderessay
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