American Municipal Bond Assurance Corporation

AAA

DEFINITION of 'American Municipal Bond Assurance Corporation'

The first municipal bond insurance company, formed in 1971 as a subsidiary of MGIC Investment Corp. of Milwaukee; now more commonly known as Ambac Financial Group, Inc. The American Municipal Bond Assurance Corporation insures new municipal bond offerings worldwide and is one of the leading firms in its field. A municipal bond issuer may purchase insurance coverage in order to increase investor confidence that principal and interest payments will be made in full and on time if the issuer defaults.

INVESTOPEDIA EXPLAINS 'American Municipal Bond Assurance Corporation'

Because of the extra confidence generated by this coverage, insured bonds may be priced higher, have lower interest rates and be more liquid. As well, bonds insured by companies such as the Ambac Financial Group normally take on the credit rating of their insurance companies, raising investor confidence even more.

However, as a result of broadening its focus from insuring only bonds to insuring residential mortgage-backed securities (RMBS) and collateralized debt obligations (CDOs), Ambac and related companies saw their businesses weakened by the housing bust in 2007. As a result, investors should not rely as heavily on bond insurance companies to guarantee their investments.

RELATED TERMS
  1. Pre-Funded Bond

    Bonds issued by a government agency that purchases U.S. government ...
  2. AA+/Aa1

    The highest rating that some ratings agencies assign to a security ...
  3. Bond

    A debt investment in which an investor loans money to an entity ...
  4. Municipals-Over-Bonds Spread - ...

    The difference in yields between a municipal bond and a Treasury ...
  5. Municipal Bond Fund

    A mutual fund that invests in municipal bonds, or "munis." Municipal ...
  6. Municipal Bond

    A debt security issued by a state, municipality or county to ...
Related Articles
  1. Junk Bonds: Everything You Need To Know
    Bonds & Fixed Income

    Junk Bonds: Everything You Need To Know

  2. Corporate Bonds: An Introduction To ...
    Bonds & Fixed Income

    Corporate Bonds: An Introduction To ...

  3. Fatal Seduction Of The Municipal Bond ...
    Mutual Funds & ETFs

    Fatal Seduction Of The Municipal Bond ...

  4. What does investment grade mean?
    Investing

    What does investment grade mean?

comments powered by Disqus
Hot Definitions
  1. Elasticity

    A measure of a variable's sensitivity to a change in another variable. In economics, elasticity refers the degree to which ...
  2. Tangible Common Equity - TCE

    A measure of a company's capital, which is used to evaluate a financial institution's ability to deal with potential losses. ...
  3. Yield To Maturity (YTM)

    The rate of return anticipated on a bond if held until the maturity date. YTM is considered a long-term bond yield expressed ...
  4. Net Present Value Of Growth Opportunities - NPVGO

    A calculation of the net present value of all future cash flows involved with an additional acquisition, or potential acquisition. ...
  5. Gresham's Law

    A monetary principle stating that "bad money drives out good." In currency valuation, Gresham's Law states that if a new ...
  6. Limit-On-Open Order - LOO

    A type of limit order to buy or sell shares at the market open if the market price meets the limit condition. This type of ...
Trading Center