We expect policy will continue to drive municipal bond markets in 2018, if more constructively than in 2017. Municipal investors may remember 2017 as the year of unrealized policy fear. While the threat of tax reform and its potential to reduce the value of the muni exemption for retail investors loomed large, ultimately it had little impact on individual municipal bonds.
Outcomes from the most recent state budget season, which concluded for most U.S. states on 30 June, underscore the need for caution among municipal bond investors.
The muni backdrop looks benign, but be mindful of potential credit risks.
An active approach to the complex, fragmented municipal bond market may help investors avoid several common drawbacks of passive strategies.
In many ways the filings may mark “the end of the beginning” (as Churchill once said) of this chapter for Puerto Rico.