Please note that VanEck may offer investments products that invest in the asset class(es) or industries included in this commentary. ġ Source Municipal Market Analytics, Inc. Source: All data and information, Municipal Market Analytics, Inc. Healthcare Defaults Are Growing in Number and % However, the size and brevity of the disruption in the remaining sectors speaks to the continued strength of high yield municipal bonds. It is no surprise that the sector most directly impacted by the Coronavirus continues to struggle through instability. The shock to the system did not result in widespread staggering defaults, but instead targeted borrowers most vulnerable to a sudden health-event shift. The concentration of defaults in one sector affirms our belief in the strength of high yield municipal bonds overall. ![]() So far in 2021, 25 senior living bonds have defaulted, compared to 30 in all of 2020 and 12 in 2019. However, senior-living facilities continue to struggle. Looking at the first seven months of 2021, we see that defaults in every sector, with one exception, have plummeted, and appear primed to settle in at levels similar to pre-pandemic times. The nation saw occupancy levels fall, broken supply-chains, and a loss of employees, which devastated them financially. This category was directly impacted by the pandemic and hit harder than any other municipal sector. ![]() The healthcare sector is known as one of the riskiest sectors historically, mainly due to the senior-living sub-category, which includes nursing homes, assisting living facilities, and continuing care retirement communities. ![]() While default rates increased in several sectors, the healthcare sector is responsible for most of the spike, doubling its five-year average. This 43% increase, or 25 more defaults, totaled $3.3 billion 1. Once the dust settled, the municipal bond space in 2020 saw 83 new defaults, quite a bit higher than the five-year average of 58, but not the calamity that was expected. At the time, municipal investors were told to brace themselves for an unprecedented number of defaults across all sectors. Most municipal borrowers began to feel a financial impact from the Coronavirus by the second and third quarters of 2020. While default rates were elevated in 2020 and so far in 2021, a closer look offers a more encouraging picture. The high yield municipal market’s resiliency passed its latest test in the COVID-19 pandemic.
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