Muniland is the subject of a lot of professional research, and I thought readers would enjoy seeing some of it. I’m going to highlight some of the best bits.
The Potential Impact of Federal Deficit Reduction on the States
Deficit reduction continues to be a major focus of both the Administration and Congress. Recent rating agency warnings about the stability of the existing US AAA rating have added a sense of urgency to the discussions and it seems likely that any deficit plan will result in cuts to federal discretionary spending.
We estimate that discretionary federal aid to the states accounts for, on average, about 11% of total state expenditures. While we don’t anticipate an abrupt reduction in this funding, even a gradual reduction will pressure state budgets, potentially negating some of the modest growth in tax revenues that states are currently realizing.
Like It’s 1999
State general government employment is down to early 1999 levels and the cuts show no signs of moderating.
Given the aggressive cost cutting at the state and local level, we take issue with the casual comments about federal “bailouts” of these entities. No government officials that we know of have asked for such a thing, so where is this notion coming from?
From Chris Shayne of Bonddesk:
Demand for individual municipal bonds among retail investors began to stabilize in May. Trade volumes have been falling consistently since peaking in January, but volumes in May were very similar to the levels in April (though still slightly lower). More importantly, the May figures were comparable to typical volumes before the recent crisis (triggered by Meredith Whitney’s now infamous comments on “60 Minutes”), suggesting the market is returning to “normal.”
Retail investors of individual muni bonds were overwhelmingly net buyers of muni bonds in May even though trading volumes was relatively light. The May buy/sell ratio was 2.4 (compared to April’s 2.5), meaning that investors purchased 2.4 bonds for every 1 bond they sold.