Calling All Issuers: The Market for Debt Monitoring.

This article investigates the widespread delays by U.S. local governments in exercising call options on long-term municipal bonds, which nearly 95% of such bonds contain. Using data from 2001 to 2019, it estimates that these delays have caused municipal issuers to lose over $26 billion, far exceeding the $1.4 billion loss estimated for the corporate bond sector under similar conditions. The study identifies issuer workload constraints—such as bonds becoming callable during fiscal year ends or when multiple bonds become callable simultaneously—and the limited effectiveness of external debt monitors, particularly underwriters, as key factors contributing to these delays. It further finds that underwriters with a strong local market focus are associated with fewer delays, while persistent issuer-underwriter relationships tend to correlate with longer delays unless the underwriter is locally concentrated. The findings highlight significant inefficiencies in municipal debt management with implications for taxpayers and suggest that market structure and monitoring improvements could mitigate these losses.