The resumption of political uncertainty in Washington is the greatest threat to the municipal bond market.
The higher income tax rates on individuals will not heal the deficit. It will only create 2% to 4% of needed revenues.
This Website Is For Financial Professionals Only
The uncertainty in Washington is making investors uncertain and that’s the real problem looming over the municipal markets.
Investors tend to hold cash when markets are uncertain. The low interest rate environment could turn quickly if inflation creeps in as a result of unprecedented easy monetary policy and the Fed decides to raise interest rates.
Both portfolio managers and individuals face the dilemma: to invest or not to invest?
Those decisions should be based, however, not on what the markets are doing, but in line with investment strategies designed to meet investor goals.
If you have to buy bonds in this environment, short durations might be the way to go. Even tax savings can erode quickly if interest rates begin to rise.