The first presidential debate between President Joe Biden and former President Donald Trump was showcased during a watch party by the Michigan Conservative Coalition on June 27, 2024. As the Federal Reserve considers interest rate cuts, municipal bonds might witness increased demand, according to experts. However, election outcomes and future policies will play crucial roles. Municipal bonds, favored by high earners for their federal tax-free interest and low default risk, could become more or less attractive depending on new tax and public financing policies from the next president and Congress, says Tom Kozlik of HilltopSecurities.
Muni bonds saw slight gains in 2024 after losses in 2022 and 2023, with yields at their highest in years. Sean Beznicki of VLP Financial Advisors notes these yields might drop as demand increases post-rate cuts. Investors should compare after-tax yields of muni and corporate bonds to make informed decisions.
If the Tax Cuts and Jobs Act of 2017 expires after 2025, muni bonds could become more appealing, especially if taxes rise. Barry Glassman of Glassman Wealth Services highlights this point, noting that muni bonds offer greater tax benefits for higher-income earners. Future credit risk for muni bonds also depends on which political party controls the White House and Congress, influencing state and local government funding.
The 2025 tax deadline looms large. Some experts, like Kozlik, are concerned about potential changes to the federal tax exemption for muni bond interest. While it survived the last round of tax reforms, future legislative actions aimed at addressing the federal deficit might put this tax break back on the table.
Original Story https://www.cnbc.com/2024/07/18/election-could-impact-muni-bond-market.html
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