Please Pass The Fiscal Relief

Generally, the bond markets are responding to the evolution of a new round of fiscal relief, and certainly the municipal bond market wants very much to be a recipient. As we have pointed out, President Biden’s current $1.9 trillion package is bound to go through the political editing process in order to achieve some sort of legislative accomplishment that would leave both parties convinced that it was the best possible negotiation that would channel adequate relief to those most in need. At this time, state and local governments are finding it difficult to factor federal fiscal relief into their budgetary formation process.

Public health policy and the trajectory of the vaccine roll-out should factor extensively into the decision-making process. Furthermore, any distribution of state and local fiscal relief will not likely be uniform and can be expected to be part of the debt narrative for a number of issuers seeking to maximize revenue streams. Of course, certain issuers and sectors within the muni market are experiencing heavier credit pressure than others, and it will take longer for the most dislocated credits to recover. This has been at the heart of the allocation and “needs” debate for some time now and we are not so sure that there is an easy solution. As the economy improves, we can expect revenue collections to make further advances for both tax-based security structures as well as for enterprise systems that rely heavily upon utilization.

From our vantage point, politics as usual is playing out as heavy criticism is already being lodged against the President, not the least of which surrounds the price tag of Mr. Biden’s opening salvo for his administration’s first round of COVID relief, again coming in at $1.9 trillion. A number of GOP naysayers are calling for a more targeted program and are also pointing to some of the more positive advances occurring in the economy as rationale for paring the President’s plan. President Biden is no stranger to congressional negotiations given his time served as a United States senator and so he has a reasonable appreciation for form and process. We suspect that a certain amount of give will need to be offered to the Republicans in order to move the President’s agenda along, especially given the razor-edge lead held by the Democrats. Let’s be mindful that COVID-19 poses considerable risks to the economic outlook and overall efficacy of the vaccines may be compromised by emerging variants, although there does not seem to be convincing evidence that such variants greatly undermine the benefits of vaccination.

For a comprehensive portfolio evaluation of your municipal holdings, please contact your Oppenheimer Financial Professional.