Dusty Self, director and portfolio manager at SEIX Investment Advisors, talks with The Bond Buyer about the effect of a state’s statutory lien protection on both litigation and trading. She gives her outlook for the municipal bond market in an election year and looks at GASB accounting changes that will highlight problems with state and local government pensions.

SELF: We think that 2016 is going to be a lot like 2015. A lot of the macro effects are still in place that we saw in 2015, so we expect slightly better than coupon income return. We see supply being manageable. It's been about 64 billion so far this year. We've seen demand still constant at about 10 billion this year. We've seen ratios go from expensive to cheap, which has brought in new buyers. We feel like supply for this year is going to be between 375 and 400. All of the things that have kept us afloat in 2015 are still in place for 2016, but we do anticipate more volatility because it is an election year.

Well, as I said we think that the election will have some play in it. Not so much from who's going to win and who is not going to win, but what policies they may bring to the table. The other influences this year will some of the accounting changes that we're going to see with Gatsby later this fall. That continues to bring to the front the issues with state and local government pensions. Pensions continue to be a problem. State budgets also continue to be a problem, and so we're seeing perhaps some of that pressure from the state level getting pushed down to local GOs. We're starting to take a very close look at local GOs and and the impact that these changes will have on them. Credits spends have been very, very tight so it's going to be difficult to see any more spread compression this year.

Well we're very excited to see states protect their GO bond holders, which we hadn't really seen before. 14 states have gone through their state legislature to provide protection to GO bond holders. That's really important as we move into this cycle where we're seeing pensioners being pitted against other constituents and where those bond revenues are going to go. In terms of the actual market as a whole, though, we anticipate those states that provide the statutory lean will eventually trade better than those that do not have that protection.