Any way you slice it, 2021 seems like it will be a good year for munis, and not because the financial condition of municipalities is so great (it isn’t!). One of the main reasons why is the incoming administration and Congress. Between Biden’s stimulus plans and the now Democrat-controlled Senate, the odds for large amounts of local and state financial support from the federal government are quite high. This part of equation is well understood, but there is a second aspect of the Democrats’ plans that will also be beneficial to munis: they plan to raise taxes on the wealthy. Higher taxes on the wealthy would directly increase demand for munis bonds, which means they should have a tailwind this year.
FINSUM: The part about increased taxes and how it drives muni demand has not been discussed enough. We think this is an excellent angle and combined with financial stimulus, should set up a couple years of smooth sailing.