Albert Jalso, senior portfolio manager for Russell Investments, which manages $4 billion in municipals, said the potential change of power has already started coming up with clients. “If we were to have Elizabeth Warren or Bernie Sanders or someone like that, munis will just tighten,” he said. “It’ll be a very strong place to be.”
Trump’s 2017 tax overhaul was a mixed bag for the state and local debt market. While corporate tax rates were slashed, curbing demand from banks, it also stopped states and cities from selling tax-exempt debt for a key type of refinancing, contributing to a steep drop-off in debt issuance that has only recently been reversed. And while it lowered the top marginal tax rate, that was offset by the deduction limits that spurred demand from some buyers.
The municipal-bond market may not need to worry about further tax cuts, in part because Trump’s have pushed the federal deficit close to $1 trillion.
“It’s more likely that tax rates rise than fall for our investors,” said Craig Pernick, senior managing director for fixed income at Chevy Chase Trust.
Democrats’ plans for new social programs could provide a boost to state and local governments’ finances as well, said Matt Fabian, a partner at research firm Municipal Market Analytics. States could use the help: federal grants for services like transportation and education stand at the lowest level as a percentage of the economy since 1989, according to a 2018 report by the left-leaning Center on Budget and Policy Priorities.
“The wealth tax is likely to expand federal spending, which would take some of the burden off of state and local spending,” Fabian said. But, he added: “We’re still a long way from talking about it to actually implementing it.”
This article provided by Bloomberg News.