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.

BREAKING DOWN '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. Municipal Bond Fund

    A mutual fund that invests in municipal bonds, or "munis." Municipal ...
  2. Net Debt To Estimated Valuation

    A ratio comparing the net value of a municipal bond issue to ...
  3. Net Debt To Assessed Valuation

    In a municipal bond issue, a ratio measuring the value of the ...
  4. Munifacts

    A newswire service for municipal bonds that provides information ...
  5. Triple-Tax-Free

    An investment (usually a municipal bond) featuring interest payments ...
  6. Combination Bond

    A bond, typically a municipal bond, that has financial backing ...
Related Articles
  1. Investing

    Fatal Seduction Of The Municipal Bond Insurers

    Learn how a foray into CDOs and other exotic products ruined an industry's image.
  2. Financial Advisor

    Why You Should Invest In Municipal Bond ETFs

    These versatile instruments have become popular with investors in higher tax brackets and fill a specific niche in the wide selection of fixed-income offerings.
  3. Investing

    A Look at the Pros and Cons of Muni Bonds

    Considering muni bonds? Here's a look at their pros and cons.
  4. Investing

    Why Muni Bonds and Bond Funds are Perfect Together

    Municipal bonds and bond funds differ in several ways, which is partly why they complement each other well.
  5. Financial Advisor

    Muni Bonds, Taxable Bonds or CDs: Which is Best?

    Here's how to tell if municipal bonds are a better investment than taxable bonds or CDs.
  6. Financial Advisor

    How to Find the Best Bets in Muni Bonds

    Approach investing in municipal bonds the same as you would investing in stocks.
  7. Investing

    Should You Consider Muni Bonds?

    Municipal bonds come in two types. General obligation bonds repay their holders through taxes. They often have low interest rates, but they’re safe.
  8. Investing

    Think Twice Before Buying Tax-Free Municipal Bonds

    Municipal bonds are relatively safe, tax-exempt securities--but they are not without drawbacks. Due diligence is required.
  9. Investing

    The Basics Of Municipal Bonds

    Investing in these bonds may offer a tax-free income stream but they are not without risks.
  10. Investing

    5 Reasons to Invest in Municipal Bonds When the Fed Hikes Rates

    Discover five reasons why investing in municipal bonds after the Fed hikes interest rates, and not before, can be a great way to boost investment income.
RELATED FAQS
  1. Who or what is backing municipal bonds?

    Learn about the basics of municipal bonds, including the various revenue sources that are utilized to back or secure municipal ... Read Answer >>
  2. How do the returns on municipal bonds compare to those of other bonds?

    Learn how tax-free municipal bonds may provide better returns than other types of bonds, and understand the risks of municipal ... Read Answer >>
  3. What do cities do with the funds generated from municipal bonds?

    Learn more about municipal bonds, including the various types of bonds issued and the purposes of municipal bond funds, such ... Read Answer >>
  4. What is the difference between municipal bonds and standard money market funds?

    The primary difference between municipal bonds - also known as "munis" - and money market funds is that municipal bonds are ... Read Answer >>
  5. What is a triple tax-free municipal bond?

    At its core, a triple tax-free municipal bond is just like any corporate bond: it is a debt instrument, a loan given to a ... Read Answer >>
Hot Definitions
  1. Interest Expense

    The cost incurred by an entity for borrowed funds. Interest expense is a non-operating expense shown on the income statement. ...
  2. Call Option

    An agreement that gives an investor the right (but not the obligation) to buy a stock, bond, commodity, or other instrument ...
  3. Pro-Rata

    Used to describe a proportionate allocation. A method of assigning an amount to a fraction, according to its share of the ...
  4. Private Placement

    The sale of securities to a relatively small number of select investors as a way of raising capital.
  5. AAA

    The highest possible rating assigned to the bonds of an issuer by credit rating agencies. An issuer that is rated AAA has ...
  6. Backward Integration

    A form of vertical integration that involves the purchase of suppliers. Companies will pursue backward integration when it ...
Trading Center