Investors are especially clamoring for higher-yielding tax-exempt hospital and airport securities, which would disappear after this year under the House bill. In the Long Island Power Authority’s $350 million issue last week, 10-year securities were priced at yields of 0.33 percentage point over the benchmark, down from 0.53 percentage point when it sold debt last year.
"It’s been a fever pitch up and down the credit spectrum," said Tom Casey, a senior portfolio manager at Standish Mellon Asset Management, who said he expects strong returns to continue in the first quarter of 2018 due to a decline in bond sales. He said there’s been "tremendous appetite" from foreign investors.
It’s not only supply that the tax plan could change. By scrapping the deduction for state and local income taxes, the overhaul would increase taxes on wealthy residents of states such as New York, California and New Jersey. That has led some analysts to predict that bonds from those states may outperform, since residents may look for new ways to drive down their federal tax bill.
"Someone who knows the market should be paying attention to high tax states, if they’re not," said Sandy Panetta, a portfolio manager at Evercore Wealth Management in New York. "They should be getting the most attention because, for sure, they will be in higher demand next year."
This article was provided by Bloomberg News.