What is a common characteristic of a default in municipal debt?

A common characteristic of a default in municipal debt is that it often leads to higher interest rates. When a municipality defaults on its debt obligations, it signals to investors that there is increased risk associated with lending to that entity. Consequently, to compensate for this heightened risk, investors will demand higher interest rates for any future debt issuances.

This adjustment reflects the market's perception of the municipality's ability to repay its debts. As creditworthiness diminishes, obtaining financing becomes more expensive, limiting the municipality's ability to engage in projects, fund public services, or meet other operational financial needs. The negative impact on interest rates serves as a clear indicator of the economic challenges that can arise following a default situation.