Investors Flood Municipal Bond Market Despite Coronavirus Resurgence
The struggling municipal bond market has not seen a shortage of buyers amid the recent coronavirus resurgence, according to the Wall Street Journal.
On Wednesday, on the verge of default, the US Virgin Islands Water and Power Authority were able to postpone a $34 million payment to Nuveen LLC. Analysts are looking deeper into municipalities that have a higher risk of default, and the results aren’t promising for investors.
In May and July, a combined 20 municipal borrowers defaulted. Municipal borrowers are struggling to make payments amid historic unemployment numbers that have contributed to a massive decrease in taxes and other sources of revenue.
Even with the obvious struggles the $4 trillion municipal bond market is facing, many investors see opportunity. These investors want to avoid volatile stock markets and provide their portfolios with stability. Municipal bonds sold off heavily in March when the US first shut down. However, investors have injected $11 million back into the bonds market since mid-May.
Dan Genter, chief executive of Los Angeles-based RNC Genter, said many clients have requested higher bond allocations to avoid volatility in the stock market. He warned that investors should be cautious when choosing which municipal bonds to invest in, carefully analyzing their financials and solvency. “The fire alarm has sounded, and people really need to go look at their bond portfolios,” Mr. Genter said.
Cities that rake in revenue from tourism are under immense pressure. According to surveys conducted by the National League of Cities and US Conference of Mayors, 90 percent of cities are projecting budget shortfalls.
Congress has yet to approve any aid to help mitigate the effects of the pandemic for cities and states with massive revenue losses. However, Mikhail Foux, head of municipal strategy at Barclays, said the recent resurgence of the virus could force Congress to approve more aid, ultimately helping the municipal market. “The negative might actually become a positive,” he said.