When you think of all the risks and all the opportunities for the muni market right now, you might be missing one of the very biggest. While a lot of talk has focused on how Biden and the Democrats—and their respective tax packages—could help muni finances, the reality is the drought out West is a big risk to the muni market. 75% of the West is in an extreme drought right now, representing almost 60m Americans. If that continues it could significantly impact muni finances.
FINSUM: Only 26% of the muni market lies in the drought area, which mitigates systemic risk, but very issuers could be badly hit. Be careful of large muni holdings in drought-stricken areas.