Moody's Ratings: One Size Fits All

| About: Moody's Corporation (MCO)

If you can’t beat them join them, and I don’t mean S&P, who cleverly avoided the issue by saying they have always rated municipal debt on the same rating scale as corporate debt. Whether S&P sticks to its white lie is another matter. Will they too inflate municipal credit ratings to remain competitive with their chief rival?

The question is, will investors be better or worse off because of the decision? When I say worse off, I do not mean lower yields for the same risk. That remains to be seen. Rather, will a Moody’s (NYSE:MCO) municipal credit rating convey more, less or the same in gauging qualitative degree of risk for buyers and sellers of U.S. municipal bonds.

My view is the adage about comparing apples and oranges is not applicable. The differences are greater, more like trying to compare apples to cacti because they are both plants (debt).

While it will take some time for the municipal market to digest the change, it is always wise to take any credit rating with a grain of salt. More salt now than ever. More obfuscation, just what we need.

For more on municipal credit you may want to look at Municipal Bonds: Time for a Closer Look, originally published here March 26, 2009. The updated article can be found on Municipal Credit Insight.

Disclosure: Author holds a long position in MCO