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Fixed-Income Insights

In this podcast, Dan Solender explores the factors that have spurred demand for—and reduced the supply of—municipal bonds.


PODCAST - 2018 Midyear Investment Outlook

The Investment Conversation: What's Driving the Muni-Bond Market?

In this podcast, Dan Solender explores the factors that have spurred demand for - and reduced the supply of - municipal bonds.

VO: Welcome to The Investment Conversation, Lord Abbett's ongoing podcast series.

VO: Hello, this is Will Andrews, digital media editor for Lord Abbett. What might the rest of 2018 hold for investors? To find out, we recently gathered five of our investment leaders for a roundtable discussion on the midyear outlook. Visitors to can view related articles and videos at

VO: One big factor in the first half was the U.S. tax legislation enacted in December 2017. Dan Solender, director of municipal bonds for Lord Abbett, says it's had a significant effect on the supply of new muni bonds in the market:

Solender: The tax policy had a tremendous impact on the municipal bond market this year. We can break it down from a supply and demand perspective. On the supply side are new issue supplies, where new bonds coming into the market were down about 15% year to date. A lot of it has to do with what was changed in the tax bill-- in the past, municipalities and issuers were able to refinance bonds in advance of their call dates. They're not allowed to do that anymore because of the tax legislation. So that was about 25% to 30% of last year's issuance, and typically it's around that amount. Advanced refunding bonds can't be issued anymore in the market. They have to wait until their call date.

A second thing is that a lot of supply was pushed into December of last year, anticipating what could happen in the tax bill. So we had a record month last December, and then the first quarter of this year was very slow for us. So supply is very low, slowly picking up, but still behind the pace of previous years.

VO: Solender also had some thoughts about how the tax law has spurred demand for munis, and its broader market impact:

Solender: On the demand side there's a retail component to it with the changes in the tax laws. The so-called SALT cap on state and local taxes is a big deal, because there are not as many exemptions for investors anymore. There's a cap on deductions. There's a smaller amount of mortgage interest deductions now. But the important thing is that for municipal bonds, the tax-free status wasn't affected. So we're seeing a tremendous demand from individual investors for municipals; it's been large for a while, and it's kept increasing.

So overall, the tax bill had a big impact on our market. It's going to keep investors interested. In states like California and New York with high tax rates, the demand from individuals has been really strong. And this tax bill has really just increased the benefit for municipal bond issuers. Earlier, we talked about the strength of the U.S. economy. Revenues are very strong across the country too. We've seen states across the country benefit. For example, a few years ago California was being compared to Greece, and now they're so strong, they're trying to figure out what to do with their surplus revenue. So, there are a lot of things that have been very positive from the tax bill.

VO: That's it for this edition of The Investment Conversation. As always, you can access a full range of investment commentary and analysis at Thanks for listening.


Investing involves risk, including the loss of principal. The value of investments in fixed-income securities will change as interest rates fluctuate and in response to market movements. Generally, when interest rates rise, the prices of debt securities fall, and when interest rates fall, prices generally rise. The municipal market can be affected by adverse tax, legislative, or political changes, and by the financial condition of the issuers of municipal securities. Investments in foreign or emerging market securities, which may be adversely affected by economic, political, or regulatory factors and subject to currency volatility and greater liquidity risk. The value of investments in equity securities will fluctuate in response to general economic conditions and to changes in the prospects of particular companies and/or sectors in the economy.

No investing strategy can overcome all market volatility or guarantee future results.

Market forecasts and projections are based on current market conditions and are subject to change without notice. Projections should not be considered a guarantee.

The views and opinions expressed by the Lord Abbett speaker are those of the speaker as of the date of the broadcast, and do not necessarily represent the views of the firm as a whole. Any such views are subject to change at any time based upon market or other conditions and Lord Abbett disclaims any responsibility to update such views. This material is not intended to be relied upon as a forecast, research or investment advice. It is not a recommendation, offer or solicitation to buy or sell any securities, or to adopt any investment strategy. Neither Lord Abbett nor the Lord Abbett speaker can be responsible for any direct or incidental loss incurred by applying any of the information offered.

The information provided is not directed at any investor or category of investors and is provided solely as general information about Lord Abbett's products and services and to otherwise provide general investment education. None of the information provided should be regarded as a suggestion to engage in or refrain from any investment-related course of action as neither Lord Abbett nor its affiliates are undertaking to provide impartial investment advice, act as an impartial adviser, or give advice in a fiduciary capacity. If you are an individual retirement investor, contact your financial advisor or other fiduciary about whether any given investment idea, strategy, product or service may be appropriate for your circumstances.

This broadcast is the copyright © 2018 of Lord, Abbett & Co. LLC. All Rights Reserved. This recording may not be reproduced in whole or in part or any form without the permission of Lord Abbett. Lord Abbett mutual funds are distributed by Lord Abbett Distributor LLC.




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