The risks of issuing pension obligation bonds are rising with inflation, interest rates

In Politics by Michael Rae

The Federal Reserve’s effort to rein in inflation might be closing the window on state and local governments’ opportunity to reduce pension burdens by issuing pension obligation bonds. These pension obligation bonds are frequently used by public employers with large pension liabilities. But do they benefit the governments that issue them? 

If assets acquired with public obligation bond (POB) proceeds yield more than the bonds’ interest and issuance costs, the government will have additional resources to meet its pension obligations over the life of the bond. For POB deals to work out, asset returns must exceed debt servicing costs. While servicing costs