Municipal bonds have performed exceptionally well this year, but aspects of Trump’s proposed tax policies threaten to disrupt segments of that market. Here is the latest news and analysis on the likely impact on the municipal bond market.
The Muni Market Turns Toward Washington (The New York Times, April 14)
Municipal investors are focused on what is coming out of Washington. The ever-changing policy proposals make the balance of risk and reward a challenge. “Professional municipal bond investors are generally sanguine that while policy changes may cause some near-term volatility, they are not an existential threat. Depending on how negotiations in Washington play out, there could even be some good news for munis.”
With Trump’s Stumbles, Muni Bonds See Record Winning Streak (Bloomberg, April 19)
State and local bonds have recorded higher returns than Treasury bonds in 2017, according to the Bloomberg Barclay indexes. With raised doubts about the Trump administration’s ability to change the tax code, “the municipal sector’s strong run may still have legs.”
Municipal Defaults, While Rare, Do Occur (Seeking Alpha, April 27)
Muni bonds are a relatively safe investment option, however, the rare defaults that have occurred grab headlines in the news. The data shows between 1970 and 2015 there were just 99 defaults which “translates into an annual default rate of .09% for all-rated municipal bonds.” Housing bonds accounted for a large part of these defaults followed by hospitals and healthcare.
Think Trump Tax Cuts Spell Doom for Municipal Bonds? Think Again (Bloomberg, April 26)
With more information coming out about possible fiscal policy changes, analysts and investors break down the major ways it could impact the municipal market. Although initial market reactions were negative, the proposed changes could have positive impacts for munis.
Owners of These Muni Bonds May Reap Windfall from Trump Tax Plan (Bloomberg, April 26)
One policy change that has been discussed is the elimination of the alternative minimum tax (AMT). For municipal bond investors “securities, which finance airports, housing agencies and non-profits, pay yields that are about half a percentage point more than traditional tax-exempt bonds because the interest is covered by the Alternative Minimum Tax. If Trump succeeds in eliminating that levy…that gap should, in theory disappear.”
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