Tax law changes and bond provisions included in the $3.5 trillion reconciliation package being debated in Washington likely will shift the demand components for and the makeup of the muni market in dramatic ways in the coming decade. The market is closely watching Washington to see whether the proposed tax law changes — higher rates for both individuals and corporations — and new municipal bond tools — the return of tax-exempt advance refundings, a higher bank-qualified limit and direct-pay taxable bonds — come to fruition. “If enacted as drafted, the impact on the municipal bond market will be comparable to the 1986 tax reform: munis’ supply and demand will both be expanded extensively, and credit quality will strengthen,” BofA Securities strategists Yingchen Li and Ian Rogow said in a Friday report. “A golden decade is to be expected. The tax-exempt muni market will over time transform to a market with much shorter average maturity and mostly advance refunded bonds, while taxable munis will grow fast and big and become the majority of outstanding munis after five years.”
Source: The Bond Buyer
