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The Week in Public Finance: Tax Reform Hits Muni Market, California Plays Tax Games and Local Pensions Do Better Than State

Corporate Tax Break Already Affecting Muni Market

Even though the federal tax overhaul has yet to go into effect, the cuts to the corporate tax rates are already impacting the municipal market. Preliminary data shows that banks have begun to reduce their muni bond buying. According to Municipal Market Analytics (MMA), banks' third quarter net buying fell to about $5.7 billion. That’s the lowest quarterly number since 2009, when banks collectively sold off a net $10.3 billion.

In addition to reducing how much they buy, MMA’s Matt Fabian says it’s “not unreasonable that at least some institutions will become net sellers” of tax-exempt municipal bonds in the early months of 2018. This, he says, could counteract what was expected to be an advantageous interest rate climate for governments.

Tim Holler