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RBC Capital Markets Head of U.S. Municipal Strategy Chris Mauro on the outlook for municipal bonds.
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As 2012 comes to a close.
People happy about that.
-- some of the best places to put your money next -- well our next guest has his outlook on Muni bonds for the new year with more here's Chris morrow head of municipal strategy.
Our capital markets Chris.
Happy new UT thanks for joining us on the -- -- the holiday for a lot of folks.
This certainly is competitive but that the first did you want it talk to you about isn't working it into this whole fiscal cliff crisis and how Muni bonds particular would be affected because.
Investors are no earned interest on most Muni bond holdings is exempt from federal tax is.
Could this change theoretically tomorrow.
Well it could theoretically could -- -- there's really two issues with the fiscal Clinton that we're concerned about one is.
What happens with federal deficit reduction has a direct impact on our state local government finances chair and as you indicated more importantly.
And a more concerned us is what happened to the tax code there's been a lot of talk about.
And in and that kind of fit for owning Munis that their federal tax exempts -- -- but it just planet reiterate that.
-- -- sure sure.
Short well you know in the president in his nuts when he thirteen budget included a prison in the air that would -- Make Munis subject to this 28% cap.
That he's he's articulated.
That was in the budget that was in the jobs bill that was in the administration submission to the super committee.
So that that provisions been around for quite awhile for the administration and up.
And that seems to be the thing that's taken root -- been gotten it that a lot of publicity -- lately in the popular press that strong growth concerned about.
You know Chris I have to throw out there listening to the developments this afternoon it seems like it's much more.
Tax increases in spending increases it'd be concerned about budget cuts.
You know by way of investing in Muni bonds is it went up again -- concern hearing the rhetoric that's coming out of Washington just moments ago even.
Well it is a big concern because.
Most states for example.
Depend on the federal government for about 30% of their revenues.
-- to the extent there are this this cuts in the discretionary program portion of the federal budget.
That's gonna come right out of the -- of -- state governments and local governments.
And also.
-- it just generally speaking if we have a significant budget cuts of most economists ours included.
Consider that's to be a precursor to lower GDP growth and we know for a fact that GDP.
And state revenues are highly correlated with each other a case if you -- -- I mean he's now what's your advice.
Pet -- our advice is to art you know we're we're we're we're fairly priced right now particularly in -- tenure part of the curve were about a 101% of buy treasuries that's a that's a fair price for Munis right now.
So our advice is to people who stay short do not do what people attempted to do -- in -- that is to go out long.
Or go down the credit curve in credit quality stay short stay high quality.
There's just too much -- thirty coming out of Washington right now Chris -- thank you short and high quality if that's -- But I in a nutshell yes.
Totally -- -- you know.
