Artificial Intelligence is Radically Changing Risk Assessments in the Muni Market
Why 3 of 4 rating agencies use A.I. and what it does
How can you predict a fire before seeing flames and smoke? Look for the spark. In the municipal bond market, finding the spark is the subject of constant research, investigation and hand wringing. Whether it is a mayor contemplating bankruptcy, a union discussing a nursing strike, or embezzlement charges against school district officials, the muni bond market is in a constant state of high alert.
Why is it so hard to spot warning signs before they turn into financial setbacks? To begin with, there are 65,000 issuers of municipal debt, which results in two significant problems. First, events that never make the headlines frequently have a significant impact, so it is not enough just to monitor mainstream news sources to make a risk analysis. Second, and perhaps more importantly, there is a cap on human ability to read, digest, and respond to information. When you are trying to monitor 65,000 issuers of debt and the millions of factors that relate to them, you are swimming up a waterfall…
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