Muni Bonds
November 5th, 2008
There’s obviously been some huge news today on the federal government front. Over here at the FLOG blog we’re still pretty interested in seeing what sort of urban policy President-Elect Obama will push in his administration. (see post below on Obama as a “metropolitan president”).
An indirect influence that Obama’s election may have on cities is that it may make municipal bonds more desirable to investors. There has been some indication that local governments were concerned about their ability to find buyers for their bonds (http://www.rockymountainnews.com/news/2008/oct/02/credit-crunch-starts-to-be-felt-in-colorado/), this problem may be mitigated by the fact that many taxpayers in the highest bracket are likely to see their taxes go up under the new administration. This may provide an increased incentive for these taxpayers to invest in state and local bonds. Not only will these taxpayers be able to receive interest off of these bonds tax free, but, according to the Wall Street Journal, buyers should not fear that local governments will default because this possibility has already been priced into the bonds.
http://online.wsj.com/article/SB122584138055498903.html
It is unlikely that there are enough wealthy muni buyers for the interest rates on local bonds to go down dramatically any time soon, but this seems like it could mean a slightly more stable financial situation for some local governments.
