Excerpt below:

The federal tax bill that came into law at the beginning of the year has also increased retail demand for muni bonds. Since there are limits on the deductibility of state and local taxes, the tax-free muni bonds are even more attractive. The tax law also restricted states’ ability to refinance older, higher coupon debt, which has reduced new supply.

John Mousseau, a muni bond expert at Cumberland Advisors, notes that muni supply is coming down. In 2016 there was $445bn of issuance, last year there was less than $400bn, and this year we may not even have $300bn.

So the 30-year, triple-A end of the muni market, which traded at about 100 per cent of the Treasury yield right after the presidential election, has rallied to 94 per cent. Given the increased demand and supply shortage, it should continue to outperform Treasuries, particularly at the long end of the market.

Read the full article here: https://www.ft.com/content/4b629a6a-126a-11e8-940e-08320fc2a277