Interview, Fireside Chat
The Resiliency of the Muni Market
- Municipal market liquidity is projected to recover fairly quickly following current volatility, with short-term weakness anticipated to be fleeting.
- New issuers are expected to leverage the current rally in treasury rates to refund old tax-exempt debt by issuing taxable munis.
- Demand for munis is forecast to remain robust through the end of the year, bolstered by cash reserves positioned on the sidelines and a shift in the tax date that will drive seasonally strong activity.
- Investors anticipate some volatility in rates, but view yield increases as primarily rate-driven rather than credit-driven, mirroring treasury movements.
- High-grade munis are positioned for performance significantly exceeding earlier forecasts, supported by strong fundamentals, technicals, an improving credit profile, and potential tax rate hikes.
- Long-duration, high-quality taxable munis are expected to attract a natural buyer base due to scarcity, while security selection will focus on specific credits in sectors impacted by the pandemic.
- The new fiscal stimulus package is expected to provide direct and indirect support for the market, with funds allocated to pandemic costs, lost revenue offsets, and infrastructure projects like water, sewer, and broadband through 2024.
- Stimulus funds are explicitly not expected to be utilized for tax cuts or pension contributions.
- The supply side for new programs remains somewhat unclear regarding potential decreases in deficit financing, though the market outlook is generally positive for strong bottom-up approaches.