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COVID-19

Muni bonds shine in a gloomy pandemic economy

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

What’s the outlook for vaccine supply?

Chief executives of America’s COVID-19 vaccine makers promised in congressional testimony to deliver the doses promised to the U.S. government by summer. The projections of confidence come after months of supply chain challenges and companies falling short of year-end projections for 2020. What changed? In part, drugmakers that normally compete are now actually helping one another. This has helped solve several supply chain issues, but not all of them.

How has the pandemic changed scientific research?

Over the past year, while some scientists turned their attention to COVID-19 and creating vaccines to fight it, most others had to pause their research — and re-imagine how to do it. Social distancing, limited lab capacity — “It’s less fun, I have to say. Like, for me the big part of the science is discussing the science with other people, getting excited about projects,” said Isabella Rauch, an immunologist at Oregon Health & Science University in Portland. Funding is also a big question for many.

What happened to all of the hazard pay essential workers were getting at the beginning of the pandemic?

Almost a year ago, when the pandemic began, essential workers were hailed as heroes. Back then, many companies gave hazard pay, an extra $2 or so per hour, for coming in to work. That quietly went away for most of them last summer. Without federal action, it’s mostly been up to local governments to create programs and mandates. They’ve helped compensate front-line workers, but they haven’t been perfect. “The solutions are small. They’re piecemeal,” said Molly Kinder at the Brookings Institution’s Metropolitan Policy Program. “You’re seeing these innovative pop-ups because we have failed overall to do something systematically.”

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