Recently, hospital bonds — which are normally seen as risky investments due to their higher default rates — are attracting investors who seek higher yields in a low-interest rate market, according to a Wall Street Journal report.
Hospital bonds within the municipal market could have a default rate 10 times higher than taxpayer-funded state and local government debt, and they are increasingly dropping certain protections or covenants within the bonds, meaning investors are on the hook if the gamble doesn't pay off.
However, higher yields come with the greater risk — through the beginning of August, hospital muni bonds have returned 8 percent this year, according to the report.
Investors are selectively scooping up bonds that could provide excellent returns, but the trend isn't sitting well with some financial firms who are adverse to the inherent risk of the bonds. "It's a worrisome trend in my mind…but there's just such demand for yield that issuers [hospitals] can get away with it," said Kathy Bramlage, director at Treasury Partners, in the report.
Hospital bonds within the municipal market could have a default rate 10 times higher than taxpayer-funded state and local government debt, and they are increasingly dropping certain protections or covenants within the bonds, meaning investors are on the hook if the gamble doesn't pay off.
However, higher yields come with the greater risk — through the beginning of August, hospital muni bonds have returned 8 percent this year, according to the report.
Investors are selectively scooping up bonds that could provide excellent returns, but the trend isn't sitting well with some financial firms who are adverse to the inherent risk of the bonds. "It's a worrisome trend in my mind…but there's just such demand for yield that issuers [hospitals] can get away with it," said Kathy Bramlage, director at Treasury Partners, in the report.
More Articles on Hospital Bonds:
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New Bond Insurer Says No to Hospitals
GAO: Municipal Bond Disclosures Could Be Better