Municipal Bond Forum
When will we see more muni bonds, higher rates?
Q
I read your article “In Fiscal Cliff Debate, One thing is Clear“, and I agree the No. 1 investment for investors is tax-free bonds. I’m a poster boy for tax-free bonds and have been buying bonds for the past 20 years. In fact, I have several million dollars worth of bonds with your firm and have enjoyed my buying experience with Andrew Blum. When will the supply of munis increase, and when will we start seeing those long-term 5% yields at par?
A
James A. Klotz responds:
Although we never found it fruitful to predict the future, our guess is we will not see increased borrowings, or the 5.00% bonds for which we are all longing, anytime soon.
The Fed tells us we will be in a low-interest-rate environment for the foreseeable future. In addition, many of the tax-reform proposals being bandied about on Capitol Hill call for restricting the type of entities permitted to issue tax-free bonds (less supply). When combining these factors with the prospect of meager economic growth, our guess is that all fixed-income rates will be moving lower in ensuing years.
In regard to munis in particular, it is also worth noting that many state and local governments are still grappling with fiscal imbalances from past years. They will not be anxious to compound these problems by taking on new debt.
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