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BlackRock Managing Director Peter Hayes weighs in on the unintended consequences of the White House’s jobs plan on the muni-bond market.
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I'm rich -- -- there on Capitol Hill and evolve richest talking about in this particular so -- trick cases interest again today as the White House keeps on pushing.
For the passage of its new jobs plant 447.
Billion dollars the full court press is still -- But the package could actually scare away investors some are saying especially in the Muni bond market and from BlackRock managing director Peter -- is here to talk more about -- Municipal bonds a lot of people watching the show Peters you know all municipal bonds and they're saying boy this change in the tax exempt status will -- have an effect on me.
We'll -- or is it just on the municipalities that are that are issuing the bonds.
It'll have a couple of for effects I think the first one is clearly gone on investors probably they're not.
That impact should be somewhat minimal as that one of the the unintended consequences of volatility in the market this year is the market is largely actually not pricing in.
The benefit of the tax exemption so I think the benefit.
The impact -- and investors will be somewhat minimal.
The impact issuers that that's where you're gonna see the biggest impact the -- cost -- go up.
To be more difficult for them to access capital.
They're not gonna absorb that cost where's that Costco and end up it's going to end up across all taxpayers not just those who buy municipal bonds so I think that's what you see probably the biggest impact -- from.
OK you're saying a municipality wants to issue debt to pay for whatever it is they wanna they wanna pay for their borrowing costs are going up.
So the rest of us pay higher taxes is essentially what the future -- That that's clearly seems to be implications I think the issuers need to be allowed us lobby and clearly they probably will be the biggest lot of opposition to this type of proposal.
One of the big debates -- be going on because as we said a moment ago whether any of this sense of going through or it's sort of a piecemeal approach.
Still remains to be seen now the other -- -- and it's going out of the market here Peters people are out there and -- try to make smart investors they're looking to.
Get some yields on whatever it is they're investing in and fixed income that's very difficult as you go to -- treasuries are essentially yielding right.
Nothing sold now just because of that I guess municipal bonds have become more attractive as that's what is that's what's basically happening.
It is it's the concept of keep more what you learn in the benefit of tax exemption.
Helps the yield in the income that you are as opposed to another investor conference to treasury -- -- subject to federal taxes and taxes -- minutes -- come.
You're not so they are pretty compelling investment when you stack them up against treasuries and even other against -- other fixed income asset classes.
Another benefit really is -- they've seen reduce volatility if you look at what's going on the equity market.
Very very volatile markets we have not seen that.
In the municipal market at least sense though -- fourth quarter of last year so will this trend for people are thinking about investing in municipals continue because its hit such a different.
It's a completely different conversation and we are having.
Whatever was six months ago when everybody was talking about and Meredith Whitney and every municipality under the sun going bankrupt.
Right at its amazing the change in sentiment and the change in performance from almost a year ago remember a year ago we were in a very low rate environment.
Rates rose dramatically through the fourth quarter of last year from analysts comments and increased issuance a host of reasons.
And this year municipals and actually been one of the best performing asset classes and the credit fundamental story has improved as well budgets got passed on time.
I think all that has led to improved investor confidence you've seen them return to the asset class in the form of increased demand fund flows dropped below last week again and I think there that's where were beginning to see more more of the realization.
Low volatility high quality.
Would load the fourth district right not not as bad as some thought it was going to be that's for sure and -- right thanks a lot for our for joining us appreciate it thanks for having me Peter Pace out of black.
