How risk, policy and structure are redefining value in the muni market
3 min read
I find myself thinking a lot about risk as I contemplate my new role as The Bond Buyer’s first Market Intelligence analyst.
Risk is unavoidable in our everyday lives. As we change jobs or move into entirely new careers, we take on an unperceived amount of risk — something I am keenly aware of as I transition into a media role after 25-plus years in senior positions with Oppenheimer, MetLife, Neuberger Berman and other public finance firms.
We can do our best to contain the risk we face, to control it, to react to it, to learn from it, and to be more aware of it. But risk is always present. The same is true, of course, in public finance. We must think about risk and how this risk drives the investment thesis. I think we need to start by assessing the strategic implications of federal and state governmental, legislative, and judicial policy shifts upon credit and technical conditions.
Evolving fiscal policies at the federal level have the potential to impact municipals from both a credit and a technical perspective, with potential litigation emerging from such developments. Although the broad threat to the tax-exemption
With the passage of H.R.1 (OBBBA), analysts will be determining the sector-specific implications of scheduled Medicaid cuts, changes to higher education, adjustments to affordable housing, and what a reduced federal role in regard to the Federal Emergency Management Agency would look like should state and local governments take on greater funding responsibility.
Policies surrounding tariffs and immigration may also pressure growth and labor conditions.
Effectively, the muni market remains closely tethered to uncertain political realities to the point where monetary policy serves as a secondary backdrop. The Market Intelligence role will look closely at sector distinctions with the intent to identify value opportunities based upon our research and expectations.
Risk in the municipal market can also stem from the varied market inefficiencies that may actually be a source of opportunity. Here we think about:
- the expansive size of the $4.3 trillion market with well over 65,000 issuers;
- the variances in market pricing given that we operate a non-quoted over-the-counter market;
- fragmented supply among broker/dealers;
- shifting economics/credit quality;
- complex issue structures including sinking funds, extraordinary redemption provisions, make-whole calls, and counter-party exposure;
- improved, yet still inconsistent data availability/disclosure; and
- rating anomalies.
All of these areas are fertile ground for Market Intelligence commentary and actionable guidance and, as an analyst, I have evaluated all of these considerations.
My new role gives me a chance to explore these kinds of issues with you, leveraging my experience conducting both sell-side and buy-side municipal credit analysis as well as providing strategic market guidance for investors. I’m also counting on the strong relationships I have formed across the muni stakeholder community, enabling me to engage with key decisionmakers and to catalyze actionable ideas and insights.
Our Market Intelligence platform will allow The Bond Buyer to provide a different market perspective backed by proprietary data and research, going beyond a comprehensive analysis of an issuer’s capacity for timely debt service payment. Although The Bond Buyer will not be advancing recommendations on individual securities, we may at times highlight a new credit with unusual security features or one that offers unique market significance.
The creation of the Market Intelligence team comes at a critically transformative intersection for The Bond Buyer as this market mainstay ties together highly acclaimed journalism with a deeper layer of subject matter expertise offering an insightful analytical and strategic voice.
In my capacity as the Market Intelligence analyst, I will be engaging with the issuer and dealer communities as well as the legal and buy-side participants to help sharpen their market intelligence pencils by identifying relevant, timely and impactful topics, themes, and ideas that are driving key decision making.
It is critically important to have such ongoing dialogue through direct outreach, one-one-one meetings, podcasts, thought leadership pieces, and participation at industry events. It is crucial to offer guidance and unique insights when navigating different and/or challenging markets by addressing the pressing issues of the day.
I look forward to engaging with The Bond Buyer community.
