Using The Muni Bond Calendar To Help Clients – ValueWalk Premium
Investment Geniuses

Using The Muni Bond Calendar To Help Clients

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Investment Geniuses

As investors and their advisors plan for the New Year, keeping an eye on how the municipal bond calendar will influence new issues and investing opportunities is wise advice. With the U.S. municipal bond market expected to remain robust in 2019, investors and their advisors need to watch the calendar for new issues that best meet their specific financial goals and investment strategies.

I’ll discuss some of the ways advisors can benefit from following the new-issue calendar, but first let’s take a look at the overall dynamics in the muni bond market.

A vast muni bond market

The U.S. municipal bond market has more than 50,000 state and local government issuers that make up a total outstanding principal amount of approximately $3.8 trillion in tax-exempt debt. About two-thirds of this debt is owned by individuals either in their names or through mutual funds, money market funds, closed-end funds or exchange-traded funds (ETFs), enabling individual taxpayers to take advantage of the preferential IRS and state treatment of tax-exempt municipal bond interest.

This year, state and local government issuers will have minted almost $400 billion in municipal bonds in 2018. This is about 10% less than 2017, when the Tax Cuts and Jobs Act was being crafted. Tax reform eliminated advance refundings, which were a common cost-saving tool for state and local governments. Consequently, state and local governments accelerated sales of their new issues and advance refundings in the fourth quarter of 2017 in anticipation of the legislated elimination of advance refundings, which became effective January 1, 2018.

About 10,000 new municipal issues will have entered the market by year-end 2018. The new-issue market is expected to stay active in 2019 as state and local infrastructure needs, including transportation, hospitals, schools, clean water, clean air, water, parks, ports, airports, and affordable housing, must be met to accommodate growth and public infrastructure renewal.

Heading into 2019, advisors watching competitive and negotiated new-issue calendars have an eye on growth trends in the economy. State and local government infrastructure investments act as a compass pointing to where private investments trend.

How to spot and track new-issue opportunities

Buying bonds at new-issue gives advisors and their clients access to the best-priced investments. This is because issuers are working with investment banking financing teams to keep costs in check. Whether the bonds are sold by the issuer via a competitive or negotiated sale, the issuer has a vested interest to work with the financing team to make sure the coupons and yields are competitive at the time of the initial offering. Advisors and their clients have benefit from the collaboration between the issuer and the financing team that ensures that the interests of the issuer, advisor and investor are aligned.

In preparation for a new issue, issuers and their counsels will draft investor disclosures (also known as a “Preliminary Official Statement,” or ”Official Statement”) based on the most recently available information about the project, the community, its economy, and how the debt will be paid back. While state and local government issuers have been responsible for preparing annual “continuing disclosure” since 1995, initial-issuance disclosure contains the most current information relative to the new-issue date. Continuing disclosure, while important for keeping the market generally informed of the issuer’s financial condition, may not be as specific, thorough or as timely as new-issue data prepared for an Official Statement.

Read the full Article by Tom Lockard, Advisor Perspectives


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