COVID-19

Muni bonds shine in a gloomy pandemic economy

Justin Ho Nov 13, 2020
Heard on: Marketplace
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Municipal bonds, which offer tax breaks, fund public infrastructure like roads, school buildings and more. Johannes Eisele/AFP via Getty Images
COVID-19

Muni bonds shine in a gloomy pandemic economy

Justin Ho Nov 13, 2020
Municipal bonds, which offer tax breaks, fund public infrastructure like roads, school buildings and more. Johannes Eisele/AFP via Getty Images
HTML EMBED:
COPY

Municipal bonds fund the construction of roads, sewage systems, school buildings and power grids. Muni bonds aren’t exactly the sexiest things in the world. But right now, in this pandemic economy, they’re having a moment in the sun.

The municipal bond market is the financial backbone of three-quarters of the country’s infrastructure, said Abby Urtz, who manages municipal credit strategies for FHN Financial.

In addition to big projects like tunnels and bridges, she said, “it funds things like college dorms and nursing homes, also public transit systems.”

The vast majority of municipal bonds also have a unique feature: The interest they pay is exempt from taxes. That appeals to wealthy individual investors who buy the majority of muni bonds and have been saving more money during the pandemic, said Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott.

“They’re also higher-end taxpayers, and so they have more to benefit, on average, from the tax exemption,” he said.

That’s not the only reason municipal bonds are in demand. They’re slightly riskier investments than Treasury bonds or corporate bonds.

Winifred Cisar, head of credit strategy at Wells Fargo, said that means “the municipal bond market continues to trade at a yield that’s pretty attractive.”

In other words, muni bonds pay higher interest. Cisar said the strong demand for them right now is a good sign for the economy.

“Historically when investors start to feel confident about seeing broader economic recovery, then they’re more willing to push their cash into riskier parts of the market.”

One index of demand for the riskiest municipal bonds has almost climbed back to its pre-pandemic level.

COVID-19 Economy FAQs

Are states ready to roll out COVID-19 vaccines?

Claire Hannan, executive director of the nonprofit Association of Immunization Managers, which represents state health officials, said states have been making good progress in their preparations. And we could have several vaccines pretty soon. But states still need more funding, she said. Hannan doesn’t think a lack of additional funding would hold up distribution initially, but it could cause problems down the road. “It’s really worrisome that Congress may not pass funding or that there’s information circulating saying that states don’t need additional funding,” she said.

How is the service industry dealing with the return of coronavirus restrictions?

Without another round of something like the Paycheck Protection Program, which kept a lot of businesses afloat during the pandemic’s early stages, the outlook is bleak for places like restaurants. Some in the San Francisco Bay Area, for example, only got one week of indoor dining back before cases rose and restrictions went back into effect. Restaurant owners are revamping their business models in an effort to survive while waiting to see if they’ll be able to get more aid.

How are hospitals handling the nationwide surge in COVID-19 cases?

As the pandemic surges and more medical professionals themselves are coming down with COVID, nearly 1 in 5 hospitals in the country report having a critical shortage of staff, according to data from the Department of Health and Human Services. One of the knock-on effects of staff shortages is that people who have other medical needs are being asked to wait.

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