American Municipal Bond Assurance Corporation


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.

  1. Bond

    A debt investment in which an investor loans money to an entity ...
  2. Pre-Funded Bond

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

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

    A grade given to bonds that indicates their credit quality. Private ...
  5. Municipals-Over-Bonds Spread - ...

    The difference in yields between a municipal bond and a Treasury ...
  6. General Obligation Bond - GO

    A municipal bond backed by the credit and "taxing power" of the ...
Related Articles
  1. Bonds & Fixed Income

    Junk Bonds: Everything You Need To Know

    Don't be fooled by the name - junk bonds may be for you if you know how to analyze them.
  2. Bonds & Fixed Income

    Corporate Bonds: An Introduction To Credit Risk

    Corporate bonds offer higher yields, but it's important to evaluate the extra risk involved before you buy.
  3. Mutual Funds & ETFs

    Fatal Seduction Of The Municipal Bond Insurers

    Learn how a foray into CDOs and other exotic products ruined an industry's image.
  4. Retirement

    Bond Basics Tutorial

    Investing in bonds - What are they, and do they belong in your portfolio?
  5. Investing

    In Search of the Rate-Proof Portfolio

    After October’s better-than-expected employment report, a December Federal Reserve (Fed) liftoff is looking more likely than it was earlier this fall.
  6. Investing

    Where the Price is Right for Dividends

    There are two broad schools of thought for equity income investing: The first pays the highest dividend yields and the second focuses on healthy yields.
  7. Financial Advisors

    Ditching High-Yield Bonds for Plain Vanilla Ones

    In a low-rate environment, it's tempting to go for higher yield bonds. However, you might be better off sticking with the plain vanilla ones.
  8. Bonds & Fixed Income

    What is an Indenture?

    An indenture is a legal and binding contract between a bond issuer and the bondholders.
  9. Bonds & Fixed Income

    Credit Default Swaps: An Introduction

    This derivative can help manage portfolio risk, but it isn't a simple vehicle.
  10. Investing

    Understanding High Yield Fund Performance

    For exchange traded fund, not all high-yield ETFs are the same. So, we take a look at one high yield investment in particular to set the stage for you.
  1. What does investment grade mean?

    Credit ratings provide a useful measure for comparing fixed-income securities, such as bonds, bills and notes. Most companies ... Read Full Answer >>
  2. What are the maximum Social Security disability benefits?

    The average Social Security disability benefit amount for a recipient of Social Security Disability Insurance (SSDI) in 2 ... Read Full Answer >>
  3. How do I calculate the future value of an annuity?

    When planning for retirement, it is important to have a good idea of how much income you can rely on each year. There are ... Read Full Answer >>
  4. Have hedge funds eroded market opportunities?

    Hedge funds have not eroded market opportunities for longer-term investors. Many investors incorrectly assume they cannot ... Read Full Answer >>
  5. Are high yield bonds a good investment?

    Bonds are rated according to their risk of default by independent credit rating agencies such as Moody's, Standard & ... Read Full Answer >>
  6. Do mutual funds invest only in stocks?

    Mutual funds invest in stocks, but certain types also invest in government and corporate bonds. Stocks are subject to the ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Take A Bath

    A slang term referring to the situation of an investor who has experienced a large loss from an investment or speculative ...
  2. Black Friday

    1. A day of stock market catastrophe. Originally, September 24, 1869, was deemed Black Friday. The crash was sparked by gold ...
  3. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  4. Barefoot Pilgrim

    A slang term for an unsophisticated investor who loses all of his or her wealth by trading equities in the stock market. ...
  5. Quick Ratio

    The quick ratio is an indicator of a company’s short-term liquidity. The quick ratio measures a company’s ability to meet ...
  6. Black Tuesday

    October 29, 1929, when the DJIA fell 12% - one of the largest one-day drops in stock market history. More than 16 million ...
Trading Center