Muni Market Overview 2020:
Munis have remained fundamentally and technically strong through recent years. Will 2020 be another year for top performance? Like other asset classes, MainLine thinks performance in 2020 will be limited. We will proclaim it a good year if you can get your coupon and have neutral price performance by year-end. We see some looming “dark clouds/angry SWANs” not priced into the market that could cause turbulence (but also opportunities) for those who see past the headlines and know “muniology”. We are seeing the following developing “dark/angry” themes in 2020 and beyond:
Climate Change Concerns. This is a 30-year risk that environment-friendly operational changes instituted today could have an economic impact on the credit quality of certain muni issuer and pricing spreads when purchasing long-term bonds.
Political Strife and the 2020 Presidential Election. Remember the market’s reaction when Trump was unexpectantly elected? We think the temperament of the nation with DC and with each other is even hotter today. Things could get ugly this fall.
Illinois Agenda. Politics and lawsuits challenging the issuance and repayment of bonds that may not be perceived for the public good was introduced in 2019. This agenda, being politically motivated, could gain copycats and grow going forward.
Will these concerns come into focus into the muni market in 2020? We will be preparing our investors’ portfolios and monitoring them to be ready when they do. Otherwise, the consensus view is a year of coupon return.