A wary municipal market ponders post-election threats
The Republican sweep poses a "material" threat to the tax exemption and protecting it should be the market's top priority, said Matt Fabian, partner at Municipal Markets Analytics Inc.
"The municipal lobby has bulked up," Fabian said. "The muni lobby has improved the data that they have, they have improved the arguments for preserving the [tax] exemption and I think they've been preparing for this potential scenario for months," Fabian said. "So if [the tax exemption] can be defended, they'll do it."
How the election will impact the muni market
Harris' housing policies may be positive for municipals, either through the issuance of new bonds or more housing, but the plan has yet to be fleshed out yet, according to Matt Fabian, partner at Municipal Market Analytics, Inc.
Bank Holdings of Muni Debt Fall to Nine-Year Low on Tax Changes
That volume has died down since the Fed hiked rates in 2022. States and local governments have sold $23.3 billion of taxable bonds so far this year, about a third of the $74.4 billion sold during the same period in 2021, according to data compiled by Bloomberg.
“That’s been a challenge for the banks, not enough taxable supply,” said Matt Fabian, a partner at research firm Municipal Markets Analytics.
Banks generally like municipal debt for their longer maturities and lower risk compared to other investments. But with a 21% corporate tax rate, the banks don’t need to rely as much on tax-exempt securities. Some are also scarred by losses endured in 2022, when the broader municipal market declined 8.5%, Fabian said.
“They took large losses on munis, so they fear them now,” Fabian said about the banks.
A bank pullback could affect prices on municipal securities if the tax-exempt market needs to rely more on individual buyers who may shy away from lower yields, according to Fabian.
“We have more exposure to changes in retail behavior,” Fabian said. “If the Fed cuts rates and interest rates fall and then retail becomes less interested in buying lower yielding bonds, it’s going to be a drag on muni performance because you don’t have corporations or others to help chase muni-bond prices higher.”
Muni Bond Sales Surge With Debt Met by Eager Investor Demand
Muni-bond sales have already jumped this year. Borrowers have issued $246 billion of long-term debt in 2024, a 36% increase from the same period a year ago, data compiled by Bloomberg shows.
“With issuers either finally bringing delayed new bond issues or accelerating future bond issues to get in front of potential election-related uncertainty, first-half issuance was strong,” strategists at Municipal Market Analytics wrote in a research note dated Monday.
Charter-School Stress Breaks Record With Pandemic Aid Ending
Investing in the Future: Safeguarding Municipal Bonds from Climate Risk
Witness: Mr. Thomas G. Doe, President and Founder, Municipal Market Analytics
Hawaii municipal bonds take a plunge
Hawaii state and local municipal bonds have surrendered all their 2023 gains in the past three weeks after the deadly Maui wildfires delivered a fresh reminder of climate risk in the $4 trillion market for state and local debt.
An index comprised of Hawaiian municipal securities has dropped 2.81% in August, the worst performance of any state and compared with a 1.8% loss for the broader market, according to data compiled by Bloomberg. Hawaii is one of only four states to post a negative performance this year. At the end of July, its municipal bonds were sporting a more than 2% gain for 2023.
“The Hawaii index was impacted by the large drop of bonds associated with the Maui catastrophe,” said Tom Doe, president and founder of Municipal Market Analytics.
Municipal bonds guaranteed by Hawaiian Electric Co. Inc, the utility under scrutiny for its possible role in the fires, had plunged as much as 40%, according to data compiled by Bloomberg.
Doe said that drop and the subsequent impact on the broader state index “exemplifies how reactive rather than proactive the market behaves relative to climate risks.”
Climate risk has become increasingly prevalent in the municipal bond market, where states and cities raise money for infrastructure projects like schools, roads and bridges. The debt can often mature in decades, raising the risk that certain certain geographies become more susceptible to extreme weather events.
Can Triple Five Keep Its Megamalls Alive?
On June 8, independent research firm Municipal Market Analytics issued a note that said it’s “increasingly likely” that roughly $1.1 billion of American Dream’s municipal bond debt will be restructured. However, on June 15—one day before the deadline to avoid default—Triple Five paid the May PILOT payment in full, except for the late payment interest. To that end, the trustee says that the developer still hasn’t fully cured the default.
American Dream Munis More Likely to Be Restructured, MMA Says
About $1.1 billion of municipal-bond debt sold for the American Dream mega mall in New Jersey is “increasingly likely” to be restructured, according to a June 8 note by Municipal Market Analytics, an independent research firm.
Investors Dip Back Into Municipal Bonds
“I think things are turning around. I don’t think it’s a blip,” Municipal Market Analytics partner Matt Fabian said of the rally. “I think munis had gotten too cheap.”
A contributing factor in municipal bonds’ rise: They are in high demand in early summer when a swath of outstanding municipal debt gets paid off and investors need new sources of tax-free income. High-net-worth investors favor the roughly $4 trillion market for state and local government bonds because the interest they throw off is typically exempt from federal and often state taxes.
Analysis: ‘Woke' ESG scores from credit raters draw GOP ire to muni market
While Moody's Investors Service, S&P Global Ratings and Fitch are the biggest credit assessors, some state officials say their ratings aren't mandatory. Already, issuers increasingly are opting for a rating from just one of the companies, with single-rated sales totaling 28% of issuance year-to-date, up from 19% in 2008, according to a report from Municipal Market Analytics.
Barclays Says to Buy Disney District Munis Amid DeSantis Feud
Investors and analysts have been trying to figure out how Florida’s unusual move to dissolve the district will play out in the municipal-bond market. Credit-rating companies have noted the uncertainty surrounding the situation, and have held off on downgrading the bonds. Research firm Municipal Market Analytics said last week that it’s a buying opportunity, and Barclays is now voicing a similar view.
Strategists at Barclays say the Reedy Creek bonds are protected by the state of Florida’s pledge not to impair the debt for the life of the obligations. The security on the bonds is “expressly contingent” on the state’s pledge not to limit or alter Reedy Creek’s right to own projects or collect taxes, which constitutes a non-impairment clause, they said.
Disney Muni Bonds Are a Bargain After DeSantis Blow, Analysts Says
“If bond prices tumble again this week or after, investors able to ride out the volatility and manage related customer communications have an opportunity to earn incremental income,” Municipal Market Analytics’s Matt Fabian and Lisa Washburn wrote in a note to clients dated Monday.
High-Yield Municipal Bonds on Track for Worst Year Since 2008
Losses outpace investment-grade munis, company high-yield
Muni high-yield on track to post worst year since 2008
California should use its $45.7 billion surplus to pay debts early, Wall Street investors say
“In theory, it’s great to use excess money you have to lower your recurring expenditures,” said Lisa Washburn, a managing director at research firm Municipal Market Analytics. “Since it’s one-time money, you want to make one-time investments.”
Currently, there are no plans to defease debt with cash, said California Deputy Treasurer Tim Schaefer by email.
ANALYSIS: Municipal Bond Defaults Signal Senior Living Distress
A January report from Municipal Market Analytics (MMA) found that in 2021, first-time municipal bond defaults for borrowers associated with senior living hit a record high. These accounted for just over half of first-time municipal bond defaults overall.
Senior living entities frequently access financing through tax-exempt municipal bonds. In these transactions a municipal entity issues bonds and then lends the proceeds to a senior living borrower. The bond documents typically provide the indenture trustee with rights against the borrower in the issuer’s loan.
Puerto Rico Bankruptcy-Exit Plan Offers Island a Fresh Start
Investors are watching to see if Puerto Rico leaders stick to sound fiscal policies once the oversight board is disbanded. The panel is set to expire after four consecutive years of balanced budgets and when the commonwealth regains access credit markets.
“There’s a lot of uncertainty about where Puerto Rico policies will go,” said Matt Fabian, a partner at research firm Municipal Market Analytics. “Will we return to the early 2000s of how Puerto Rico ran itself in or will Puerto Rico actually run itself similar to how other states run themselves?”
Wave of muni bonds maturing in next five years will boost demand
The muni market’s current dynamics – scarce supply, low rates, tight spreads and a stable credit landscape – means issuers are enjoying one of the strongest markets in modern history.
So said Matt Fabian, a partner at Municipal Market Analytics, speaking Thursday at the Government Finance Officers Association’s MiniMuni conference.
Senior Housing Leads Wave of Municipal Bond Defaults With 27 This Year
Municipal bond defaults are climbing in 2021 — and the senior housing sector is at the top of the pile, according to an Oct. 6 analysis from market research firm Municipal Market Analytics.
For the full year of 2021, the firm has so far recorded 47 first-time payment defaults, representing about $2.4 billion in credit. More than half (27) of the defaults were linked to senior housing communities, which is listed as a “risky” sector for credit along with hospitals, student housing, jails and higher education.