June 14, 2021
The municipal bond demand has spiked to a near all-time high. Prices are indicative of that, but a more assured sign is the tiny amount of supply in the secondary market. Muni managers are holding excess cash because the secondary market has all but dried up, with an average of 32,500 muni bond transactions occurring daily since the start of the year, the lowest since 2005. The key reason is tax-exemption: many have flocked to this tax-safe investment, driven by fears of Biden’s new tax plan. Investors have added $1.9 billion a week to muni bond funds, over four times the average over the last decade. Yields over treasuries have sunk but that hasn’t stopped the pace of the sales.
FINSUM + Magnifi: Keep an eye on the infrastructure package. This will not only increase demand for munis via taxes, but an influx of supply will come in for municipal spending and projects.
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