UBS Global Wealth Management’s Head Americas Fixed Income Thomas McLoughlin joined Yahoo Finance Live to discuss what the outlook for municipal bonds is for 2021.
THOMAS MCLOUGHLIN: As we head toward the closing bell, one place that investors look for yield, as well as protection sometimes, is fixed income. Let’s bring in Tom McLoughlin, UBS Global Wealth Management’s Head of America’s Fixed Income, because in your most recent note on municipal bonds, you wrote about something that just struck me as well.
I thought that would go counter to the whole point of purchasing munis, which is that a third of them issued in 2020 actually are subject to federal tax. And I was always raised that you go to munis to get the double bang of the return, but also the non-tax prospect. So what’s going on here?
THOMAS MCLOUGHLIN: Yeah, you know, it’s interesting, Adam. This is probably the most pronounced new trend that we’ve seen in municipals since at least 2010. The Tax Cut and Jobs Act provided a change to the tax regime, which prevented state and local governments from doing what we call advanced refunding.
So if a state or local government wants to refinance their debt, similar to how a homeowner might refinance their mortgage, they used to be able to do it well in advance of the optional redemption date. And they can no longer do so by law since the end of 2017. So many are actually issuing bonds to refinance