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Muni-Bond Market Braces for Borrowing Rush Ahead of Tax Changes

The House of Representatives bill would require investors to pay income taxes on so-called private activity bonds, or PABs, which finance projects like airports, water facilities and toll roads, and do away with a frequently used refinancing technique known as advanced refunding. While the Senate version leaves PABs intact, the risk may push borrowers to act before the law is changed, Municipal Market Analytics said in a research report.

“It could be a huge end of the year,” Matt Fabian, a partner with MMA, said in an interview. “Issuers will probably begin to access the market shortly just on the risk. If they’re going to borrow next year they might as well accelerate to borrow now.”

A late-year rush -- if significant enough -- would offset the slowdown in the municipal market, where new debt sales have declined from last year’s record pace. That contributed to this week’s drop in state and local government bonds prices, paring the gains that came after the tax overhaul promised to slash sales in the years ahead by pulling the tax-exemption from a significant chunk of the market.

Tim Holler