The Unemployment Rate Is “Grossly” Understated. Here’s Why.

Excerpt from Barron's - July 02, 2020

A portion of John Mousseau, CFA's commentary, The Muni Selloff That Was, was incorporated into Barron's editorial piece, "The Unemployment Rate Is 'Grossly' Understated. Here’s Why."

July 1: The infrastructure bill being considered by Congress contains two pluses for the muni market. The first is a resumption of the Build America Bonds program. This program enjoyed great success during the last recession, with the issuance program lasting from April 2009 through December 2010. It allowed issuers to issue bonds in the taxable bond market with a federal subsidy on the interest payments. The issues had to be for new projects, which was the stimulus part of the program. The resumed program may not have the same 35% subsidy that the original had, but rather may hard-code the subsidy at a lower level. Sequestrations at the federal level caused that original subsidy to go from 35% down to the mid-20% levels over time.

Another positive aspect in the infrastructure program is the return of advance refundings in the tax-free bond market. This practice was removed by the 2017 tax bill, but had been a way for municipalities to save money by refunding older higher-coupon bonds to their first call date. Anything that allows municipalities to lower their cost of future funding is a very big positive, in our opinion, as we move forward from the pandemic.

John R. Mousseau

Read the full article at Barron's:  https://www.barrons.com/articles/the-unemployment-rate-for-june-is-grossly-understated-51593732640

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