For securities in the crosshairs of a new Congress and president, municipal bonds are a hit with investors and leaders working to finance vital public improvements.

Last year, muni issuance hit a record $507.7 billion, a 32% jump from 2023.

In November, for example, voters across the country approved billions in bond issues. California voters gave the nod to five of the largest individual ballot referendums, totaling almost $34 billion, for education, water quality, protection from floods and droughts and wildfire projects.

In Rhode Island, where statewide bond referendums haven’t failed in almost 20 years, voters approved $343 million for higher education, housing and other projects, Raymond James noted. Voters gave three statewide issues in Maine the thumbs up, and public-school issues in Vermont and Baltimore passed.

Eliminate inflation risk

Last week the Nebraska State Highway Commission agreed to the state’s first bond issue for a highway project. The project will finance the completion of an expressway in the northeast part of the state that is expected to support regional agriculture and manufacturing industries.

The director of Nebraska’s department of transportation told the state’s highway commission last month the bonds would serve as a bulwark against construction inflation.

A commissioner said previous governors “always wanted a pay-as-you-go program,” but bonding now made more fiscal sense, according to The Bond Buyer.

Ample supply as threat looms

Municipal bonds were created to help local governments fund the public needs of their communities. Given the popularity and success in carrying out this mission, it’s difficult to see the wisdom in altering their structure.

Unfortunately, as we discussed, that’s the conversation in Washington (“Municipal Bonds Tax Exemption Threatened”), where Congress and the incoming administration may try to eliminate or limit the tax-exemption on interest income from municipal bonds to pay for tax cuts.

As the year kicks off, investors are deploying their reinvestment funds, bonds are available at attractive yields and new issues continue to proliferate.

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An estimated $27 billion of maturing bonds and called principal will occur this month and February could be even larger.

“Buyers are ready to buy,” one analyst told The Bond Buyer.

Potential changes to the tax exemption makes little sense, and it’s unclear if and when they might occur. Fortunately, changes would only apply to future bond issues.

In the meantime, there is ample supply of municipal bonds at unusually compelling yields.