Taxable municipal bonds (taxable at the federal – and oftentimes state – income level) have historically lacked investors’ attention due to limited supply and presence in a market dominated by investors seeking non-taxable income. Supply has skyrocketed in recent years due to aspects of the 2017 tax reform bill, low nominal interest rates and a flat yield curve. Therefore, taxable municipals are more readily available, and they also offer attractive relative and risk-adjusted returns compared to other high-grade fixed income.
In December 2019 we released Unapparent Risk in Municipal Bond Land which recapped a solid year of performance and warned investors of the underlying risks within the municipal market. We did not expect those risks to come to fruition so quickly, but they certainly became apparent three months later last March. We are gratified in many instances, our positioning of clients’ portfolios provided safeguards against the risks…
LATEST – Part III: Thus far, the data indicates that some of the most dire revenue projections resulting from the pandemic lockdowns have not come to fruition as the resumption of economic activity has been stronger than expected.
Part I: In this environment liquidity (rainy-day balances), revenue source prominence (lien priority and/or purpose), and income source flexibility are important aspects of a bond’s underlying credit quality. Our focus on public purpose general obligation and essential revenue source bonds largely provide such levels of security……
Part II: In light of impending revenue shortfalls, the underlying credit quality of a municipality entering the crisis and management’s ability and willingness to reduce certain expenses takes on significant importance.
Active and Passive
Fee or one-time transaction cost
City of Black River Falls, WI Electric System
Village of Mundelein | Lake County, IL
Snohomish County, WA
Grand Traverse County, MI – Township of Blair…
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