Muni Matters: Four Key Themes for the Decade Ahead | Lord Abbett

Tracked Funds

You have 0 funds on your mutual fund watch list.

Begin by selecting funds to create a personalized watch list.

(as of 12/05/2015)

Pending Orders

You have 0 items in your cart.

Subscribe and order forms, fact sheets, presentations, and other documents that can help advisers grow their business.


Fixed-Income Insights

What developments might shape the municipal bond market of the 2020s?

I recently had the opportunity to discuss prospects for economies and markets in the coming year with a number of Lord Abbett colleagues at our 2020 Investment Outlook roundtable. In particular, I enjoyed hearing their questions on the important topics for municipal bonds in the months ahead.


Advisors: Dan Solender and other Lord Abbett experts will tackle prospects for the municipal bond market and other key topics during our 2020 Investment Outlook Webinar on January 8. Register now.


But January 1, 2020, doesn’t just mark the start of a new year. It also heralds a new decade. What might the 2020s bring for municipal bond investors? While we don’t make predictions on asset prices, as long-term investors, we are mindful of future developments that might shape the muni bond market in the coming years. Here’s a brief look at four trends we will be watching as the new decade unfolds:

Retiring Baby Boomers
Baby Boomers will be moving into retirement age en masse in the next several years and that could potentially have an impact on municipals in several ways. First, these newly minted retirees might become more conservative in their asset allocations, showing a greater preference for fixed income. That would be a positive for muni-bond demand. 

Second, the healthcare sector—which makes up a large part of the revenue bond segment of the muni market—likely will be affected as more retirees start using Medicare, which provides lower reimbursement rates than commercial insurers. This will mean increased demand for healthcare services, but also greater pressure on margins for hospitals and other healthcare providers, so it could be both a positive and a negative. 

Third, many retiring Boomers might try to sell houses as they downsize or move to senior living communities. This could have an impact on housing prices, which in turn could affect collection of real estate taxes by local governments. These shortfalls could put some pressure on local budgets if revenue growth is not strong. 

The United States has a lot of infrastructure needs which get a lot of headlines, but keep being deferred.  Eventually these projects, such as the long-discussed train tunnel between New Jersey and New York, will become necessary and not optional, leading to potentially more municipal bond issuance or increased supply.

Climate Change
We believe climate change is likely to influence municipal bond credit quality, and indeed, the impact is only starting to be seen. For example, the recent wildfires in California have dramatically affected the finances of several cities; coastal states and cities will need to prepare more for the impact of natural catastrophes, such as flooding, that may be exacerbated by accelerating climate change. In recent years, the Federal government has supported a lot of the costs related to these disasters, but going forward, the growing expense of these events may need to be taken on more by local governments or independent organizations.

Pension Funding
For the handful of U.S. states that have not sufficiently funded their pensions, and have thus far avoided a significant impact on their overall finances, the clock will be running in the 2020s. These states, including Illinois and New Jersey, will need to be proactive with their annual contributions and investment decisions in order to make sure cash flow issues keep being pushed further into the future. Fortunately, all of them have been making greater efforts in this direction in recent years.

Summing Up
The municipal bond market has benefited from a number of asset-class focused developments over the past several years, including interest-rate moves and tax-policy changes. Going forward, however, the trends we’ve discussed here may also have a significant impact on the market as the new decade progresses.


About The Author


Please confirm your literature shipping address

Please review the address information below and make any necessary changes.

All literature orders will be shipped to the address that you enter below. This information can be edited at any time.

Current Literature Shipping Address

* Required field