President Trump’s call for $1 trillion in infrastructure spending could swell the nation’s municipal bond supply, for example, while the possibility of lower corporate tax rates could reduce the appetites of banks
and insurers, which now own about 30 percent of muni bonds.
While a sharp rate spike would cause bond prices to suffer bigger losses, Christopher Ryon, municipal bond manager at Thornburg Investment Management, noted
that “we are not in a situation where rates are going to take off.” (Bond prices and bond yields move in opposite directions.
Yet, Mr. Hayes said, “There’s also the possibility
that the ability of corporations to deduct corporate bond interest goes away.” That would lead to less issuance of corporate bonds — and that could increase demand for muni bonds.
That works out to a 3.73 percent taxable equivalent yield for someone in a 33-percent federal income tax bracket
As for eliminating the exemption for interest income, changing it would affect thousands of municipalities
that rely on muni bonds to finance their public works.