Non-Sovereign Bonds

Non-sovereign bonds are bonds issued by local governments. These bonds are generally issued to finance schools, hospitals, highways, bridges, etc. The sources of repayment proceeds are (the):

• General taxing authority of the issuer
• Project cash flows
• Special taxes

This type of bonds receives high credit ratings due to low default rates. They often trade at a higher yield than their sovereign counterparts.

There are two basic types of municipal bonds:

General obligation (GO) bonds depend on the general creditworthiness of a municipality to repay the debt. The credit analysis has some similarities to sovereign analysis. In general, a municipal analyst should look at employment, industry, and real estate valuation trends needed to generate taxes and fees.

Revenue bonds support specific projects. The credit analysis is identical to that of a corporate bond analysis. The focus is to assess whether or not the underlying cash flows from the project will be sufficient to meet the obligations.

Quasi-Government Bonds

Quasi-government bonds are issued by the government through various political subdivisions. Most of them are not secured by collateral and don't have government guarantees. Their credit ratings are very high due to extremely low historical default rates.

Supranational Bonds

Supranational bonds are bonds issued by supranational agencies such as the World Bank.