Muni Think

While the economic data are still bleak, signs of recovery may already be emerging.

Public finance has changed a lot since the Great Depression, so a repeat of that era’s default experience is not preordained even if this contraction matches the worst predictions.

The ultimate impact of the bear market on pension risks is likely to vary widely among issuers, making granular analysis more important and valuable.

The Fed’s new program, however, will not be enough to negate the serious financial consequences that are likely to befall some local governments as they begin to feel the full effects of shutting down the economy. Both the Fed and Congress need to do more.

It is the underlying economy and demographics that drive tax revenues, budget needs, policy decisions, and capital needs/debt issuance of governments. Economic data is objective and updated often which can be critical in times like these.

The coronavirus has created such a massive disruption to the world’s stock markets that almost all California public employee defined-benefit pension plans will never recover. At a minimum, they must be put on a fiscal ventilator.

A complete disconnect between liquidity providers and seekers exposed the market’s inefficiencies: an asset class dominated by a limited investor base—retail investors—has grown increasingly concentrated.

Banks, asset managers, and other financial institutions need liquidity. This has created an unprecedented buying opportunity, with yields not seen since the financial crisis and then only seen for a short period of time.

While some types of revenue bonds may be less adversely affected than other types of revenue bonds, the entire market could see significant stress as the pandemic continues.

We are desperately trying to establish the bottom at present to provide a modicum of confidence that investors may stop raising cash and would be more inclined to put the cash horde back to work in the market.