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Speaker 1: Bloomberg Audio Studios, podcasts, radio news. You're listening to the

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Speaker 1: Bloomberg Intelligence Podcast. Catch us live weekdays at ten am

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Speaker 2: Taking a look here at the consumer confidence number, Paul,

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Speaker 2: that you just referenced. It unexpectedly fell in January to

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Speaker 2: a four month low, and the reason the labor market

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Speaker 2: and the outlook for the broader economy. So let's go

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Speaker 2: and get more on this right now with Stephanie Gushard,

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Speaker 2: a senior economist at the Conference Board. Can you walk

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Speaker 2: us through this lack of confidence, Stephanie.

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Speaker 3: So, I wouldn't call it a lack of confidence. Through

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Speaker 3: our index declined for the second consecutive months. However, if

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Speaker 3: you look at it for the past two years, it's

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Speaker 3: been stuck in this narrow range and it's not breaking

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Speaker 3: three no on the upside, no on the downside. So indeed,

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Speaker 3: this month there was a decline, but it's more like

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Speaker 3: a correction from the very strong index we saw in

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Speaker 3: October and November. So the it's just to us, it's

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Speaker 3: just a correction, and it's driven by consumers assessments of

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Speaker 3: the present situation, which has been downgraded slightly.

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Speaker 4: What's historically for this measurement, Stephane, what's kind of the

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Speaker 4: key drivers for consumer sentiment here? What's really been kind

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Speaker 4: of pushing this over the last year or two.

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Speaker 3: I think it's really the label market. So for the

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Speaker 3: past two years, consumers have been very happy with the

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Speaker 3: current situation and the label market. I mean, we all

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Speaker 3: know employment has been relatively low. There are plenty of jobs,

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Speaker 3: a bit less than just after the pandemic, but still

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Speaker 3: plenty of jobs available. So consumers are happy about the

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Speaker 3: present situation. They are worried about the future because they

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Speaker 3: all know that good things don't last forever. So it's

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Speaker 3: you have this tool driver, happy about the current labor market,

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Speaker 3: worried about where it's going. And this has been really

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Speaker 3: driving our index for the past two years.

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Speaker 5: All right, Stephanie, we appreciate that. Thank you very much.

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Speaker 2: Stephanie Gisha joining us from the conference board.

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Speaker 5: Thank you.

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Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch the program

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Speaker 1: live weekdays at ten am Eastern on Applecarplay and Android

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Speaker 1: Otto with the Bloomberg Business app. You can also listen

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Speaker 1: Just say Alexa play Bloomberg eleven thirty.

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Speaker 6: Let's get back to the municipal market.

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Speaker 4: We are at BAM Mutual offices down in the Lowermanhad

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Speaker 4: Build American Mutual talking about the.

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Speaker 6: Municipal bond industry.

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Speaker 4: Tom Dojoy of municipal markets analytics, municipal bond market, it's

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Speaker 4: an active market. Talk to us about twenty twenty four

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Speaker 4: in terms of new issue once, Tom and kind of

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Speaker 4: what you guys think about twenty twenty five.

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Speaker 7: Well, there was record issuance, as you point out in

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Speaker 7: twenty twenty four, tremendous access to the market. We think

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Speaker 7: there's going to be continued high issuance going forward. We

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Speaker 7: actually think that in the next ten years that we'll

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Speaker 7: see municipal issuance reach a trillion a year versus five

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Speaker 7: hundred billion last year.

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Speaker 5: WHOA, And the buyers are all there.

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Speaker 7: Yes, and it's predominantly individuals through fond ETFs and in

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Speaker 7: direct purchases.

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Speaker 4: Some of the Trump administration, President Trump himself is saying

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Speaker 4: that perhaps as it relates to infrastructure spending, maybe even

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Speaker 4: disaster relief spending, that some of the spending should be

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Speaker 4: more at the state.

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Speaker 6: Local level versus the federal level. How does your market

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Speaker 6: think about that.

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Speaker 7: I couldn't agree more with that perspective. In fact, a

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Speaker 7: year ago, almost to the day I spoke testified before

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Speaker 7: the Senate Budget Committee and made those points Senator Brown

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Speaker 7: from Indiana who is now governor in Indiana.

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Speaker 8: I'm champion that.

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Speaker 7: I think that the states and local governments have the

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Speaker 7: capacity deck capacity.

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Speaker 8: To take on.

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Speaker 7: Again more, can take on more, and it's right for

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Speaker 7: them to have that local oversight for the disaster relief.

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Speaker 7: So I think it's it's a really it's a win win.

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Speaker 7: I think that we have more control at the state

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Speaker 7: and local level the federal government. It takes some of

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Speaker 7: that responsibility off their books. So I think it's a

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Speaker 7: real opportunity actually for the municipal industry of what Trump

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Speaker 7: was saying in Project twenty twenty five for regarding FEMA.

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Speaker 2: What are the issues out of DC or headlines out

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Speaker 2: of DC. Are you guys in the meuni market monitoring

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Speaker 2: this year?

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Speaker 7: Well, the municipal market is kind of a fear based

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Speaker 7: market because everybody's looking at the exemption drives everything and so.

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Speaker 5: There's a great thing like that might go away and therefore.

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Speaker 7: Exactly exactly, and so that everyone thinks, oh my god.

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Speaker 7: You know, I'm a mutual one manager. You'll be talking

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Speaker 7: to some later today and they go, my god, if

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Speaker 7: it's not a taxic that market, well, what do we

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Speaker 7: do with our business? I I think, and who knows

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Speaker 7: how to handicap that? I mean, the market's been around

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Speaker 7: for one hundred plus years. I think load default rates

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Speaker 7: because this retail dominated. I always remember back in two

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Speaker 7: thousand and eight that Barney Frank during the financial crisis

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Speaker 7: said the problem was the disconnect between the borrower and

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Speaker 7: the lender. And I think that's what the municipal market

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Speaker 7: actually has, is that close connection because of the exemption.

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Speaker 7: So there's some limitations the exemption presents, but it also

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Speaker 7: creates that better oversight and as a result, load default

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Speaker 7: rates and a very attractive investment states municipalities.

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Speaker 4: I've been totally missed with mold market. They issued the

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Speaker 4: money when they need it, not when maybe it's smartest

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Speaker 4: to raise it, like when rates are low. They if

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Speaker 4: they have to build a bridger or something like that road,

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Speaker 4: that's when they issue the bond.

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Speaker 6: Is that still kind of how it works.

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Speaker 7: I think you're right. I mean, it's not a very

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Speaker 7: forward looking market. But to your point, the federal government

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Speaker 7: also doesn't often borrow when rates are low too, right,

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Speaker 7: So it's not just the state and locals. So I

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Speaker 7: think what I'd like to see, certainly in wake of

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Speaker 7: Los Angeles and the wildfires and the hurricanes in North

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Speaker 7: Carolina we all know about, is that we could have

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Speaker 7: more climate adaptation type of projects, so better infrastructure for

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Speaker 7: flood control, water and sewer management of wildfires. These types

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Speaker 7: of things I think are opportunities for the municipal industry

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Speaker 7: to really step forward and start pushing some.

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Speaker 8: Of these projects.

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Speaker 2: Done that down for me for a second, So does

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Speaker 2: that mean that then you would issue bonds that would

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Speaker 2: be tax exempt, that then you'd use that for disaster prevention?

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Speaker 9: Well?

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Speaker 7: Sure, because well in that so let's say we have

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Speaker 7: we know the storms, rainstorms are, we see more rain,

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Speaker 7: they're more frequent, and they're overwhelming existing infrastructure. So really

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Speaker 7: what I'm saying is listing to the forward looking is

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Speaker 7: being more attentive to upgrading antiquated infrastructure that we know,

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Speaker 7: you know, the lead pipes and all this type of

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Speaker 7: thing that are around.

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Speaker 8: But I'm very.

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Speaker 7: Interested in the flood and the water and sewer aspect,

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Speaker 7: cause I think that impacts not only impacts economies, it's

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Speaker 7: important also on utilities to upgrade those. We've seen those

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Speaker 7: with the wildfires right the sparks and whether it's Hawaii

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Speaker 7: or California. So I think that's the opportunity for the

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Speaker 7: industry to say this is the way to upgrade infrastructure

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Speaker 7: and now to reduce the potential future costs of the

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Speaker 7: federal government through FEMA.

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Speaker 4: You what are some of the sectors that you think

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Speaker 4: will be active issuers in the coming year two or three.

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Speaker 8: Well, as I just mentioned again, I come back our

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Speaker 8: drum beat.

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Speaker 4: Here, how about education, because I'm not sure that used

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Speaker 4: to be I felt like a good active area, but

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Speaker 4: I'm not sure anymore.

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Speaker 7: Well, everyone likes to build schools, right, They're politically attractive

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Speaker 7: and it's always about the children, right, So we always

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Speaker 7: so everyone likes to do those, and it's a high

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Speaker 7: percentage of municipal issuance is tied to schools, secondary and

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Speaker 7: elementary and all that. So I think you'll see continue

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Speaker 7: that again, coming back to a theme that I think

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Speaker 7: is really focus is you know, changing weather, increased heat,

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Speaker 7: You've got to improve HVAC systems in these schools in

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Speaker 7: Arizona and all this, and so that's another area of financing.

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Speaker 7: You know, there were there was in Montana, there was

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Speaker 7: financing for airplanes to fight wildfires.

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Speaker 8: Yeah, you know, and so the airplane deal.

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Speaker 6: Yeah interesting, Yeah, we saw them in l A certainly.

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Speaker 9: Yeah.

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Speaker 8: Absolutely.

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Speaker 2: What about salt deductions, like we're like super into looking

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Speaker 2: at those obviously living in Jersey and New York. How

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Speaker 2: does that influence or change or impact the muni.

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Speaker 7: Market, Frank, muni market not so much, okay, really, I

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Speaker 7: mean it's it's more of our it's more of our

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Speaker 7: personal interests.

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Speaker 8: Right, here's a mine of having that.

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Speaker 2: So so no changes in terms of the demand for

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Speaker 2: municipal bonds or okay.

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Speaker 8: I mean, it's just it's on it's on the margin

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Speaker 8: type of a thing.

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Speaker 6: See musical bonds. I'm telling you, it's a thing. I'm

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Speaker 6: a big fan in musical bond market.

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Speaker 8: I think they're great. It's fine.

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Speaker 7: It's a lot of gray area, so it makes it

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Speaker 7: interesting as well. Right, it's a political or emotional city.

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Speaker 7: Get to gets out of the municipal bond underwriting business.

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Speaker 7: Great strategy.

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Speaker 6: Yeah City, it's going to be kidding me.

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Speaker 8: What a mistake, right, huge stake terrible.

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Speaker 4: Tom Doe, founder and CEO of Municipal Market Analytics, join

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Speaker 4: us here talking about the municipal bond market. It is

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Speaker 4: a big market, active market, deep market, and Build American

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Speaker 4: Mutual plays a big role in now because they ensure

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Speaker 4: a lot of municipal bonds, which gives investors at IT

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Speaker 4: security and things like that, So we keep an eye

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Speaker 4: on that.

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Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live

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Speaker 1: weekdays at ten am Eastern on Apple Coarclay and Android

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Speaker 1: Auto with the Bloomberg Business App. Listen on demand wherever

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Speaker 1: you get your podcasts, or watch us live on YouTube.

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Speaker 4: Alex Steele, Paul Sweeney, We are live from the Build

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Speaker 4: American Mutual BAM Mutual. They're down located in Lower Manhattan

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Speaker 4: with their offices today talking about the municipal bond market,

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Speaker 4: which we like to do from time to time. For

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Speaker 4: those of us that live in a high tech state

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Speaker 4: like New Jersey, for example, the triple tax rebaby equivalent

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Speaker 4: yield is very very attractive. Peter Drew joins us head

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Speaker 4: of Muni Research for JP Morgan, Hey, Peter.

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Speaker 6: One of the big issues there's a lot of.

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Speaker 4: Talk about tax reform out there, is there ever discussion

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Speaker 4: about addressing or eliminating or adjusting the tax efficiency of

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Speaker 4: municipal bonds.

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Speaker 10: First of all, thank you very much for having me here.

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Speaker 10: In terms of in the municipal mom market. Naturally, there

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Speaker 10: is a significant amount of discussion around the potential elimination

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Speaker 10: of the federal tax exemption for interest rate income on

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Speaker 10: municipal bonds. Right this as the task for Congress is

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Speaker 10: to come up with the roughly four point six trillion

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Speaker 10: dollar bill for the extension of TCJA. Therefore, I guess

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Speaker 10: the alarm in the market started when we received a

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Speaker 10: very extensive list from the House Ways and Means Committee,

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Speaker 10: which included about well over one hundred pay fores for

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Speaker 10: a potential pay force for that extension of TCJA. On

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Speaker 10: that list were some far flung items like the elimination

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Speaker 10: of the mortgage deduction for homeowners, which are pretty far flung, right.

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Speaker 10: The other which we thought was, you know, sort of remote,

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Speaker 10: is the elimination of the exemption for federal taxes for

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Speaker 10: state and local taxes on your federal tax forms. Right

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Speaker 10: along with those was the elimination of the exemption for

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Speaker 10: tax exempt interest for state and local bonds, as well

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Speaker 10: as the elimination of the tax exemption federal tax exemption

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Speaker 10: for private activity bonds and a large catchual for all municipals.

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Speaker 10: So naturally the market concerned. Historically when this has come up,

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Speaker 10: and it has come up regularly in pay fors for

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Speaker 10: different administration's priorities, these have gotten washed out of later

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Speaker 10: drafts of the bill. And naturally this isn't in a

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Speaker 10: draft of the bill, right, this was merely a laundry

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Speaker 10: list of potential pay fors for the extension of.

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Speaker 2: Tc Either way, you guys have to be gaming out

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Speaker 2: a little bit, right, So, like what would happen to

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Speaker 2: issuance if the tax exemption part went away?

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Speaker 10: So our view is if the tax exemption went away,

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Speaker 10: it would only be on a prospective basis. So there

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Speaker 10: and as we've seen in the nineteen eighty six Tax Act,

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Speaker 10: and oh, by the way, as recently as twenty seventeen

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Speaker 10: when TCJA limited the tax exemption on tax exempt advanced

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Speaker 10: for funding of tax exempt debt recall, in that bill,

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Speaker 10: initially they had the elimination of all private activity bonds. Right,

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Speaker 10: private activity bonds account for about twenty five percent of

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Speaker 10: the municipal bond market, which might also be in played

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Speaker 10: in terms of discussion this time around. But in our view,

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Speaker 10: what we'll likely see is just, you know, potentially, like

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Speaker 10: we saw in twenty seventeen, a little nipping at the

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Speaker 10: heels of the exemption. So let's say, a mordinalization of

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Speaker 10: the exemption for municipals going forward, potentially on some sectors

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Speaker 10: like higher education or potentially in healthcare, or possibly within

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Speaker 10: some portion of the private activity bond space. So our view,

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Speaker 10: as you see lesser potentially, you know, lesser tax exempt

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Speaker 10: issuance on a go forward basis, again has nothing to

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Speaker 10: do with bonds that are already issued, already held by

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Speaker 10: investors in the market importantly, right, and that ultimately it

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Speaker 10: drives scarcity value in the securities that are currently outstanding

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Speaker 10: in the market. Folks buy MUTY bonds for two reasons

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Speaker 10: safety surity of capital, right, get your money back, and

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Speaker 10: then two tax exempt interesting income about the only game

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Speaker 10: in town for taxes. Interest income supply demand supply goes down,

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Speaker 10: the man remains the same.

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Speaker 9: Prices go up.

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Speaker 6: Interesting.

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Speaker 4: So one of those drivers we were mentioning was the

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Speaker 4: tax interest. What's the is the expectation in your market

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Speaker 4: that this will remain a vibrant market going forward, because

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Speaker 4: again there are some concerns there. Are you seeing any

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Speaker 4: minisipiltis rush to get into the market, maybe sensing that

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Speaker 4: maybe this exemption may be at risk.

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Speaker 10: That's an excellent point here Toofore we have not seen

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Speaker 10: that you might anticipate that just in terms of gaming out.

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Speaker 9: The probabilities here.

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Speaker 10: Even if you expect a wholesale limitation or larger limitation

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Speaker 10: on the tax exemption going forward to be sort of

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Speaker 10: marginle you would likely out of prudence potentially you want

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Speaker 10: to get some of that istion wins in pull it

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Speaker 10: forward before the actual legislation is passed. Right last year,

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Speaker 10: we certainly think we saw some additionally issue once as

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Speaker 10: a pull forward before the election. It would make sense

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Speaker 10: now as these sort of milestones are being hit or

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Speaker 10: some of the concerns on the market are being hit. Right,

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Speaker 10: we know that tax exemption is on the list now

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Speaker 10: at least under consideration, So it might be proven for

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Speaker 10: some issuers to pull their issuance needs forward to take

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Speaker 10: advantage of the tax exemption while it still exists.

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Speaker 5: Okay, interesting, I'm curious.

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Speaker 2: We were talking earlier with a guest about the natural

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Speaker 2: disasters and the role that the mini market can play

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Speaker 2: in that. What kind of questions are you getting from

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Speaker 2: your clients about to the wildfires in La.

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Speaker 10: Well, first of all, that it's a tremendous human tragedy.

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Speaker 10: It's hard to run into somebody in California from the

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Speaker 10: state that doesn't at least know someone who's been impacted.

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Speaker 10: So in terms of the questions that we're getting is

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Speaker 10: naturally from a credit perspective, what might be impacted in

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Speaker 10: the space.

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Speaker 9: Sort of two sides, right.

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Speaker 10: One is that historically, when we've looked at sort of

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Speaker 10: these natural disasters in retrospect, there is very little long

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Speaker 10: lasting impact from a credit, a sustained credit impact on

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Speaker 10: the error after the rebuild. Now that's historically, Certainly, these

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Speaker 10: these LA fires are on a scale that we haven't

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Speaker 10: seen before. Right, most recent estimates and short lourses of

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Speaker 10: thirty billion, almost three x the largest fire that we've

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Speaker 10: seen in California from an insured loss perspective. So today,

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Speaker 10: for example, we saw rating agencies put on notice several

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Speaker 10: credits within the space, including the city, the City of

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Speaker 10: la and you know, basically a large number of utilities

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Speaker 10: that do service the area with potential liability depending upon

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Speaker 10: how you know, the causes of the fire are determined

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Speaker 10: over longer periods of time. So you know, have said

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Speaker 10: that there has been very little, very few defaults in

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Speaker 10: the market, limited defaults.

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Speaker 6: In Peter, thank you so much for joining us. Really appreciateive.

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Speaker 4: Peter de he's head of municipal Research at JP Morgan

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Speaker 4: joining us on site here at BAM Mutual in Lower Manhattan.

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Speaker 4: As we talked about the municipal bond market here, a

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Speaker 4: large market, but again there are some issues out there.

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Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live

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Speaker 1: weekdays at ten am Eastern on Applecarcklay and Android Auto

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Speaker 1: with the Bloomberg Business App. Listen on demand wherever you

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Speaker 1: get your podcasts, or watch us live on YouTube.

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Speaker 6: Go back to the municipal market.

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Speaker 4: We're joined by Laura Whitstruck, Chief Municipal Analytical Officer SMP

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Speaker 4: globeal're rating. She joins us here on site at Filled

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Speaker 4: America Mutual North. Thanks so much for joining us here

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Speaker 4: assigning ratings. Talk to us about the credit quality that

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Speaker 4: you see out there in the municipal boonb market. I

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Speaker 4: can't remember the last time we had a Puerto Rico

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Speaker 4: in Illinois. What's going on on there? It seems pretty good.

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Speaker 11: Yeah, thanks for having me.

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Speaker 12: And I would say that, you know, generally, in twenty

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Speaker 12: twenty five, I like to say that the municipal sector

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Speaker 12: is cautiously stable. A lot of state and local governments

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Speaker 12: are coming into twenty twenty five still sort of riding

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Speaker 12: some high liquidity and reserve levels based on the COVID

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Speaker 12: relief based still yeah, you know, they had to commit

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Speaker 12: it all by the end of last year, but they

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Speaker 12: had to they have to spend it all by the

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Speaker 12: end of twenty twenty six, so they still have some

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Speaker 12: in their coffers generally, and I think also just the

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Speaker 12: economy has been pretty good and that helps state and

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Speaker 12: local governments and other entities that we rate in terms

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Speaker 12: of the demand that they see for their services.

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Speaker 2: When it comes to something we've been talking about the

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Speaker 2: last hour and a half or so, are the impact

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Speaker 2: of natural disasters and the LA wildfires, Like how do

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Speaker 2: you deal with ratings and natural disasters like that?

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Speaker 12: So we bake risk into our ratings, as you might

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Speaker 12: imagine as credit analysts, and that.

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Speaker 5: Probably wasn't on anyone's BINGO card.

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Speaker 12: So we in California, particularly in the utilities sector, watching

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Speaker 12: wildfires from a credit risk perspective because of the fact

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Speaker 12: that the state has inverse condemnation, which means utilities, even

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Speaker 12: if they are not negligent, can be.

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Speaker 13: Liable for sparking a wildfire if any of their equipment

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Speaker 13: is involved. That's right, cause, yep, absolutely so. Actually, LADWP,

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Speaker 13: we lowered from double A to double A minus a

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Speaker 13: few years ago because they choose as a decision not

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Speaker 13: to de energize their lines relative to wildfires.

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Speaker 12: And that's fine for them to do that. It's different

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Speaker 12: than some of their peers in California who do do that.

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Speaker 12: But because of that, they decide that because they're based

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Speaker 12: in an urban area, they don't want to shut off

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Speaker 12: their traffic lights. They think that the risk trade off

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Speaker 12: between the wildfire and human costs are are not are

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Speaker 12: not equal, So we lowered their ratings that I think.

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Speaker 12: I think part of that is the inverse condemnation, but

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Speaker 12: also it's just the fact that utilities are particularly susceptible

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Speaker 12: to infrastructure damage during a severe weather event, whether it

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Speaker 12: be a wildfire, a hurricane, flooding. So it's all been

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Speaker 12: baked into our ratings. The actions that we took on LADWP,

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Speaker 12: we're partly reflecting a recalibration of that risk as wildfires

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Speaker 12: have come into more urban areas versus where they historically

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Speaker 12: have occurred in rural communities.

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Speaker 4: I guess in response to the LA fires, President Trump

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Speaker 4: I think is voiced some displeasure with FEMA and even

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Speaker 4: suggesting maybe some of the disaster relief responsibilities at the

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Speaker 4: federal level FEMA be put down at the state.

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Speaker 6: And local level. Some people think that's a good idea.

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Speaker 4: My question is simpecifically, can states and local municipalties afford

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Speaker 4: that kind of stuff.

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Speaker 12: Well, we've historically said that FEMA is an important credit

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Speaker 12: support for state and local governments. These disasters are increasing

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Speaker 12: frequency and increasing in cost, and absent federal aid, you know,

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Speaker 12: that would be a significant pressure for them, and absorbing

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Speaker 12: all of the costs is just probably a little unsustainable

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Speaker 12: at the current rating levels. I think what we are

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Speaker 12: watching for is what he actually decides to do.

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Speaker 11: Does he still.

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Speaker 12: Decide to maintain the federal aid and shift it to

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Speaker 12: a block grant for states and then states are responsible

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Speaker 12: for allocating it, or you know, does disaster relief go

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Speaker 12: away entirely. Those are two very different dynamics that we

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Speaker 12: have to monitor in terms of how I relate.

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Speaker 2: What are the different options then for those two scenarios,

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Speaker 2: how would that how would each impact the mini market?

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Speaker 12: So I think if even a lower level of disaster

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Speaker 12: relief for state and local governments, right now, they typically

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Speaker 12: get somewhere between seventy and ninety percent of the costs

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Speaker 12: reimbursed from the federal government. If that goes to twenty percent,

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Speaker 12: that's something that we'd have to consider. If that goes

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Speaker 12: to zero, that's a whole nother decision on our part

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Speaker 12: to determine what the liquidity and reserves of state and

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Speaker 12: local governments and entities that we rate need to maintain

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Speaker 12: as a buffer against these types of disasters.

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Speaker 11: Now, if it.

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Speaker 12: Just shifts from FEMA being the allocator and the distributor

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Speaker 12: of funds to states in terms of a block grant,

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Speaker 12: that probably could be even like a non concern for us.

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Speaker 11: If you will, all.

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Speaker 4: Right, as a credit rating agency, you get paid to worry.

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Speaker 4: We get paid to worry Aside from natural disasters, which

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Speaker 4: can be an overwhelming topic. What are more of some

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Speaker 4: pedestrian things that concern you?

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Speaker 12: Well, you know, I think generally we look at long

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Speaker 12: term liabilities, right, so pensions and how state and local

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Speaker 12: governments and other entities that we rate manage their pension systems.

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Speaker 12: Typically it's managed at the state level. What does that mean?

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Speaker 12: We are increasingly seeing more people retire, so how do

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Speaker 12: those costs get baked into the budget? States in particular

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Speaker 12: are a safety net for Medicaid, and that's something that

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Speaker 12: President Trump has also spoken about in terms of modifying

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Speaker 12: that plan. States get a lot of money to support

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Speaker 12: people that are vulnerable and need to be in those programs.

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Speaker 12: How could that change the way states function and what

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Speaker 12: they need to allocate resources to. I think we also

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Speaker 12: watch labor productivity and labor workforce dynamics. I think one

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Speaker 12: of the things that we noted after the election is

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Speaker 12: that immigration has been good for our workforce in the US.

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Speaker 12: It has really lowered the cost and the tightness of

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Speaker 12: the labor market. That has turned into high increases in

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Speaker 12: salaries and personal costs for state and local governments and

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Speaker 12: entities that we rate.

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Speaker 11: So a major change in border security.

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Speaker 12: Could tighten that labor market right back up, and that

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Speaker 12: could put additional cost pressures back onto these entities that

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Speaker 12: we rate.

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Speaker 2: I mean, on the flip side, does it actually take

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Speaker 2: away some of the state aid though?

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Speaker 11: Also so it.

443
00:24:02,760 --> 00:24:05,280
Speaker 12: Could definitely be a bit of a boost. Right, So

444
00:24:05,560 --> 00:24:08,600
Speaker 12: New York City in particular with asylum seekers, had to

445
00:24:08,640 --> 00:24:12,000
Speaker 12: absorb a significant billions of dollars in additional costs to

446
00:24:12,160 --> 00:24:15,840
Speaker 12: help those individuals as they come into this come into

447
00:24:15,840 --> 00:24:18,679
Speaker 12: the city. That could definitely be a bit of a

448
00:24:18,840 --> 00:24:20,639
Speaker 12: relief valve for them if.

449
00:24:20,600 --> 00:24:21,760
Speaker 11: That were to change.

450
00:24:22,800 --> 00:24:25,760
Speaker 12: I think too, you know, there could be some cost

451
00:24:25,800 --> 00:24:31,360
Speaker 12: savings relative to medicaid, relative to other social services that

452
00:24:31,400 --> 00:24:35,280
Speaker 12: they need to participate in to you know, come survive

453
00:24:35,359 --> 00:24:37,960
Speaker 12: once they get to the US. So that definitely there

454
00:24:38,000 --> 00:24:41,879
Speaker 12: could be some offsetting improvements in cost savings relative to

455
00:24:41,920 --> 00:24:42,560
Speaker 12: credit quality.

456
00:24:42,760 --> 00:24:46,399
Speaker 4: Maybe you can explain to me how life works in Florida. Yeah, okay,

457
00:24:46,840 --> 00:24:52,480
Speaker 4: Texas no state taxes? How do they build schools and

458
00:24:52,600 --> 00:24:55,720
Speaker 4: roads and things like that? Because my my state that

459
00:24:55,920 --> 00:24:57,920
Speaker 4: my you know, property taxes are really high.

460
00:24:58,080 --> 00:25:00,880
Speaker 12: Yeah, you know, Jery, I mean I own a five

461
00:25:00,920 --> 00:25:03,639
Speaker 12: hundred and fifty square foot condo, and my property taxes

462
00:25:03,640 --> 00:25:05,760
Speaker 12: are ten thousand dollars in New York City.

463
00:25:05,800 --> 00:25:06,760
Speaker 11: So I hear you on that.

464
00:25:08,080 --> 00:25:11,760
Speaker 12: What happens in states that don't have an income tax,

465
00:25:12,119 --> 00:25:16,680
Speaker 12: typically they securitize other forms of revenue. So they securitize

466
00:25:16,680 --> 00:25:21,480
Speaker 12: gas taxes, they securitize sales taxes, they securitize property taxes,

467
00:25:21,520 --> 00:25:24,679
Speaker 12: which is typically the way most state and local governments

468
00:25:24,720 --> 00:25:27,680
Speaker 12: secure the debt obligations that they have outstanding is through

469
00:25:27,760 --> 00:25:31,520
Speaker 12: property taxes. So yeah, you're right, those taxes are high,

470
00:25:31,560 --> 00:25:34,000
Speaker 12: and some of it will go to paying off debt

471
00:25:34,040 --> 00:25:36,480
Speaker 12: obligations for the entities that we rate.

472
00:25:36,600 --> 00:25:37,720
Speaker 5: You don't feel good about that?

473
00:25:37,840 --> 00:25:40,760
Speaker 6: Yeah, why do I have to pay these high taxes?

474
00:25:41,080 --> 00:25:43,520
Speaker 6: Everybody's moving to Florida to escape taxes.

475
00:25:43,600 --> 00:25:45,800
Speaker 5: It's true. No one likes paying the taxes exactly.

476
00:25:45,920 --> 00:25:47,040
Speaker 11: Yes, Well, what are.

477
00:25:46,880 --> 00:25:48,959
Speaker 2: Some other key things that are that you guys are

478
00:25:48,960 --> 00:25:50,240
Speaker 2: talking about right now, like on the desk?

479
00:25:50,480 --> 00:25:54,240
Speaker 12: Yeah, so I think you know, we're definitely watching federal policy.

480
00:25:54,840 --> 00:26:00,000
Speaker 12: We're definitely watching how aspects of affordability cut across all

481
00:26:00,000 --> 00:26:03,040
Speaker 12: all of our sectors. So you know, I was the

482
00:26:03,040 --> 00:26:05,720
Speaker 12: housing sector lead before I was the chief analytical officer,

483
00:26:05,960 --> 00:26:09,840
Speaker 12: and we were watching, you know, the lack of housing

484
00:26:09,920 --> 00:26:13,000
Speaker 12: inventory and how that was affecting the entities that we rate,

485
00:26:13,040 --> 00:26:17,639
Speaker 12: like state housing finance agencies and social housing providers, public

486
00:26:17,640 --> 00:26:21,880
Speaker 12: housing authorities, how they're navigating that particular aspect, but it's

487
00:26:21,880 --> 00:26:26,600
Speaker 12: playing out everywhere. So water utilities and public power utilities,

488
00:26:26,960 --> 00:26:27,720
Speaker 12: some of which.

489
00:26:27,600 --> 00:26:32,120
Speaker 11: Operate in La County. We've been watching how.

490
00:26:31,920 --> 00:26:35,040
Speaker 12: They're raising rates to not only pay for deferred maintenance

491
00:26:35,119 --> 00:26:38,880
Speaker 12: but also for investment for adaptation to wildfires and other

492
00:26:38,960 --> 00:26:42,680
Speaker 12: severe weather events. Some have been a little bit lax

493
00:26:42,760 --> 00:26:45,840
Speaker 12: in doing that because it's been expensive to live in

494
00:26:45,880 --> 00:26:48,400
Speaker 12: America right We've had an inflationary environment.

495
00:26:48,880 --> 00:26:51,320
Speaker 11: We've had you know, higher.

496
00:26:51,400 --> 00:26:54,280
Speaker 12: Cost associated with food, We've had a higher cost associated

497
00:26:54,320 --> 00:26:58,040
Speaker 12: with utilities. Insurance premiums are going up for property and

498
00:26:58,040 --> 00:27:01,119
Speaker 12: casualty insurance. So all of those things are weighing on

499
00:27:01,200 --> 00:27:04,440
Speaker 12: management teams and they're looking at how they can dampen

500
00:27:05,000 --> 00:27:08,480
Speaker 12: those costs as much as possible. So affordability is something

501
00:27:08,520 --> 00:27:13,080
Speaker 12: that we're really watching. We're also watching, you know, just demographics. Generally,

502
00:27:14,080 --> 00:27:17,800
Speaker 12: our higher education sector has been plagued a little bit.

503
00:27:17,840 --> 00:27:22,120
Speaker 12: Some institutions have had enrollment trends that are declining, which

504
00:27:22,160 --> 00:27:25,199
Speaker 12: is a big input to our credit analysis because it

505
00:27:25,240 --> 00:27:29,480
Speaker 12: generates money for public and private private higher education institutions.

506
00:27:30,840 --> 00:27:32,680
Speaker 11: When those trends decline.

507
00:27:32,320 --> 00:27:34,880
Speaker 12: They have to figure out how to create.

508
00:27:34,600 --> 00:27:36,840
Speaker 11: Revenue other than through tuition and fees.

509
00:27:37,320 --> 00:27:43,399
Speaker 12: So demographics, the aging aspect of America, people leaving the workforce, people,

510
00:27:43,760 --> 00:27:49,080
Speaker 12: you know, lower demographic trends of people coming into education providers.

511
00:27:49,080 --> 00:27:50,800
Speaker 12: You know, all of that is something that can be

512
00:27:51,400 --> 00:27:54,480
Speaker 12: kind of a disruption to credit quality.

513
00:27:54,680 --> 00:27:55,760
Speaker 6: Just got about a minute left.

514
00:27:56,280 --> 00:27:59,280
Speaker 4: To what extent are you concerned about the tax exemption

515
00:27:59,359 --> 00:28:01,840
Speaker 4: of municipal that and perhaps losing that or having that

516
00:28:01,880 --> 00:28:02,440
Speaker 4: be limited.

517
00:28:03,160 --> 00:28:05,639
Speaker 12: I think it really goes back to the question of affordability.

518
00:28:06,080 --> 00:28:09,240
Speaker 12: So for us, you know, we don't advocate for policies.

519
00:28:09,280 --> 00:28:11,879
Speaker 12: We only sort of evaluate how the policies play out

520
00:28:11,920 --> 00:28:15,640
Speaker 12: when we know the details of them. So initially, you know,

521
00:28:15,840 --> 00:28:19,760
Speaker 12: whether entities issue tax exempt debt or taxable debt really

522
00:28:19,760 --> 00:28:22,080
Speaker 12: comes down to the costs of their capital and how

523
00:28:22,119 --> 00:28:25,960
Speaker 12: that gets baked into property taxes, sales taxes, other types

524
00:28:26,000 --> 00:28:29,880
Speaker 12: of allocations of resources that state and local governments need

525
00:28:29,920 --> 00:28:33,840
Speaker 12: to be making towards people, towards pension and OPEP obligations

526
00:28:33,880 --> 00:28:38,800
Speaker 12: towards disaster recovery. So if state and local governments, through

527
00:28:39,040 --> 00:28:42,400
Speaker 12: losing the tax exemption have to pay higher debt service

528
00:28:42,480 --> 00:28:46,280
Speaker 12: costs because they're issuing taxable debt, that is really just

529
00:28:46,360 --> 00:28:49,160
Speaker 12: going to sort of funnel down to that affordability question

530
00:28:49,280 --> 00:28:54,080
Speaker 12: and probably result in long term increases potentially to property

531
00:28:54,120 --> 00:28:57,240
Speaker 12: taxes and other taxes that secure debt service obligations.

532
00:28:57,600 --> 00:28:59,600
Speaker 5: Norah, thanks so much, Really appreciate it. Learned so much.

533
00:28:59,640 --> 00:29:03,200
Speaker 2: Nor would Struck, Chief Municipal Analytical Officer over at SMP Global.

534
00:29:04,880 --> 00:29:08,560
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live

535
00:29:08,640 --> 00:29:11,720
Speaker 1: weekdays at ten am Eastern on Apple Coarclay and Android

536
00:29:11,760 --> 00:29:15,040
Speaker 1: Auto with the Bloomberg Business App. Listen on demand wherever

537
00:29:15,120 --> 00:29:18,640
Speaker 1: you get your podcasts, or watch us live on YouTube.

538
00:29:19,280 --> 00:29:20,920
Speaker 2: Let's go to more on the meuni market because we're

539
00:29:20,960 --> 00:29:23,720
Speaker 2: right here in Lawer Manhattan for BAYM Mutual. We're going

540
00:29:23,800 --> 00:29:25,760
Speaker 2: to dissect all areas of the meuni market. Joining us

541
00:29:25,760 --> 00:29:27,880
Speaker 2: now here on set is Mark Paris, head of Municipal

542
00:29:27,920 --> 00:29:29,880
Speaker 2: Bonds over at Investco.

543
00:29:30,000 --> 00:29:30,200
Speaker 14: Mark.

544
00:29:30,200 --> 00:29:31,200
Speaker 5: Good to see you, thanks for.

545
00:29:31,160 --> 00:29:33,000
Speaker 9: Being here, see you, thank you for having me.

546
00:29:33,120 --> 00:29:36,000
Speaker 2: Let's pretend like I don't invest in muni's, and somebody

547
00:29:36,040 --> 00:29:38,120
Speaker 2: has been telling me for a while to invest in munis,

548
00:29:38,120 --> 00:29:39,480
Speaker 2: And then I come to you and I say, hey,

549
00:29:39,960 --> 00:29:41,360
Speaker 2: what should I invest it in muni's?

550
00:29:41,360 --> 00:29:41,960
Speaker 5: What do you tell me?

551
00:29:42,520 --> 00:29:44,560
Speaker 14: So I think that the best part about the meuni

552
00:29:44,640 --> 00:29:46,520
Speaker 14: market is it's not what you make, it's what you keep.

553
00:29:46,960 --> 00:29:50,280
Speaker 14: And so the tax exemption is really key to investors.

554
00:29:50,320 --> 00:29:54,680
Speaker 14: And I think that the basic concept is that school districts, hospitals,

555
00:29:55,240 --> 00:29:57,360
Speaker 14: toll roads, they get to invest at a lower interest

556
00:29:57,440 --> 00:30:00,280
Speaker 14: rate because what they pay is tax exemp and the

557
00:30:00,320 --> 00:30:02,960
Speaker 14: investor can gross it up. So my advice to investors

558
00:30:03,520 --> 00:30:06,200
Speaker 14: is you want to have a diversity in your portfolio,

559
00:30:06,240 --> 00:30:09,360
Speaker 14: whether you create that or a manager creates that. You

560
00:30:09,440 --> 00:30:13,040
Speaker 14: want to have a knowledge of what you own. You know,

561
00:30:13,080 --> 00:30:14,680
Speaker 14: my kids always joke with me when we go to

562
00:30:14,720 --> 00:30:16,479
Speaker 14: a town. They say, oh, Dad, I know you own

563
00:30:16,520 --> 00:30:18,880
Speaker 14: the hospital, you own the toll road. You know, you

564
00:30:18,920 --> 00:30:22,200
Speaker 14: know you want to know what you do. Well, they're

565
00:30:22,520 --> 00:30:25,480
Speaker 14: older now, but but the the the idea is that

566
00:30:25,520 --> 00:30:28,040
Speaker 14: these are things that you can see, touch, feel, drive on.

567
00:30:28,600 --> 00:30:29,920
Speaker 9: Uh and they're good projects.

568
00:30:29,960 --> 00:30:31,640
Speaker 14: And as you heard, normal In order to talk about

569
00:30:31,840 --> 00:30:34,360
Speaker 14: the credit quality of the UNI market. It's a fun

570
00:30:34,360 --> 00:30:37,280
Speaker 14: place to invest in, it's a tax exempt place, uh

571
00:30:37,280 --> 00:30:40,240
Speaker 14: to invest in. And then if you get into lower credits,

572
00:30:40,240 --> 00:30:42,640
Speaker 14: then you're going to want a professional money manager to

573
00:30:42,640 --> 00:30:44,680
Speaker 14: help you out if you, you know, want to go

574
00:30:44,760 --> 00:30:47,760
Speaker 14: out longer on the curve or or things things like that.

575
00:30:47,800 --> 00:30:50,000
Speaker 14: But I would say diversity is important, and I would

576
00:30:50,040 --> 00:30:52,120
Speaker 14: say that these are the things of essential services that

577
00:30:52,160 --> 00:30:53,400
Speaker 14: we live and breathe every day.

578
00:30:53,920 --> 00:30:55,880
Speaker 6: What are some of the sectors that you guys like

579
00:30:56,440 --> 00:30:57,000
Speaker 6: these days?

580
00:30:57,440 --> 00:31:00,200
Speaker 14: So I think transportation is really a key sector in

581
00:31:00,240 --> 00:31:04,600
Speaker 14: this country, whether that's a train line in Florida or airports.

582
00:31:04,960 --> 00:31:07,320
Speaker 14: You know, I always have people come into the city

583
00:31:07,360 --> 00:31:09,680
Speaker 14: to visit me and they come through Laguardi and they say, Wow,

584
00:31:09,720 --> 00:31:11,040
Speaker 14: that place looks so different.

585
00:31:11,080 --> 00:31:12,600
Speaker 9: Now, well we just redid it.

586
00:31:14,000 --> 00:31:15,960
Speaker 5: Yeah, but that was long time coming.

587
00:31:16,000 --> 00:31:17,960
Speaker 14: But okay, that was that was a long time coming.

588
00:31:17,960 --> 00:31:20,360
Speaker 14: But now JFK is going through the same process. And

589
00:31:20,680 --> 00:31:24,040
Speaker 14: they had bonds. So airport bonds a great origination and

590
00:31:24,120 --> 00:31:28,040
Speaker 14: departure fees, the the you know, concessions that go on

591
00:31:28,480 --> 00:31:31,400
Speaker 14: at the airport. We see that that transportation part of

592
00:31:31,440 --> 00:31:34,520
Speaker 14: the economy is always sort of you know, humming here

593
00:31:34,560 --> 00:31:36,840
Speaker 14: in the United States. So that's been a good part

594
00:31:37,120 --> 00:31:40,320
Speaker 14: of what we do. You know, we also like toll roads.

595
00:31:40,360 --> 00:31:42,720
Speaker 14: We also like water and sewer. You know, we like

596
00:31:42,760 --> 00:31:44,160
Speaker 14: to say, you wake up in the morning, you turn

597
00:31:44,200 --> 00:31:45,800
Speaker 14: the lights on, we own the power company, you go

598
00:31:45,800 --> 00:31:47,760
Speaker 14: to brush your teeth, we own the water company. You

599
00:31:47,800 --> 00:31:49,480
Speaker 14: get in your car and go to work. We owned

600
00:31:49,480 --> 00:31:51,680
Speaker 14: the probably the toll road that you go on. So

601
00:31:52,560 --> 00:31:55,240
Speaker 14: you know, we like essential service revenue bonds. But we'll

602
00:31:55,280 --> 00:31:57,800
Speaker 14: also buy some university, some hospitals. But that's where you

603
00:31:57,840 --> 00:31:59,280
Speaker 14: want to do a little bit more credit work.

604
00:31:59,600 --> 00:31:59,880
Speaker 5: Okay.

605
00:32:00,160 --> 00:32:02,000
Speaker 2: So I was gonna say, where are the riskier parts

606
00:32:02,040 --> 00:32:04,320
Speaker 2: in the muni market? I mean clearly, like what you're saying,

607
00:32:04,320 --> 00:32:07,240
Speaker 2: the infrastructure, tolls, water like that feels like the safety

608
00:32:07,320 --> 00:32:09,120
Speaker 2: bet in the meuni market from what you're saying, Am

609
00:32:09,160 --> 00:32:09,640
Speaker 2: I right in that?

610
00:32:09,680 --> 00:32:10,200
Speaker 5: And then where's the.

611
00:32:10,200 --> 00:32:10,760
Speaker 9: Risk of you bet?

612
00:32:10,960 --> 00:32:11,160
Speaker 8: Yeah?

613
00:32:11,160 --> 00:32:11,680
Speaker 9: Absolutely.

614
00:32:11,680 --> 00:32:14,120
Speaker 14: Look, I think you have to look at smaller universities

615
00:32:14,160 --> 00:32:18,240
Speaker 14: these days, universities that are private that have smaller enrollment,

616
00:32:18,280 --> 00:32:21,560
Speaker 14: smaller endowment, that are kind of changing their standards to

617
00:32:21,560 --> 00:32:24,120
Speaker 14: get people in, and that may have too big of

618
00:32:24,160 --> 00:32:25,200
Speaker 14: a debt load.

619
00:32:25,560 --> 00:32:27,120
Speaker 9: It's the same thing as in the corporate market.

620
00:32:27,120 --> 00:32:29,760
Speaker 14: You know, it's a matter of how much leverage a

621
00:32:29,840 --> 00:32:33,560
Speaker 14: borrower takes on. The hospital sector has been interesting to

622
00:32:33,640 --> 00:32:35,960
Speaker 14: us because some of them have spent some of their

623
00:32:35,960 --> 00:32:38,680
Speaker 14: COVID money a little too quickly. But then again, you

624
00:32:38,720 --> 00:32:41,959
Speaker 14: have hospitals that are doing elective surgeries, hospitals that are

625
00:32:41,960 --> 00:32:44,520
Speaker 14: in the birthing business that are doing just fine. So

626
00:32:45,320 --> 00:32:48,120
Speaker 14: you know, credit work is really important, not just to

627
00:32:48,120 --> 00:32:50,360
Speaker 14: say I don't like that sector or there's bad news

628
00:32:50,360 --> 00:32:53,320
Speaker 14: in that sector, but what are the actual individual credits

629
00:32:53,320 --> 00:32:55,440
Speaker 14: that are going on. We are a finite market. Once

630
00:32:55,440 --> 00:32:57,400
Speaker 14: an issue comes to market, it's going to trade for

631
00:32:57,440 --> 00:32:59,560
Speaker 14: a while, then it's probably going to disappear. So it's

632
00:32:59,560 --> 00:33:02,840
Speaker 14: really import and to do individual credit work on some

633
00:33:02,960 --> 00:33:05,840
Speaker 14: of the different aspects of of some of the some

634
00:33:05,880 --> 00:33:06,800
Speaker 14: of the lower credits.

635
00:33:07,120 --> 00:33:09,680
Speaker 4: As an institutional investor in this market, how do you

636
00:33:09,760 --> 00:33:12,040
Speaker 4: rate the risk of that tax ability losing some of

637
00:33:12,080 --> 00:33:14,320
Speaker 4: the tax efficiency of this market, whether it's some change

638
00:33:14,360 --> 00:33:15,680
Speaker 4: in tax laws or anything like that.

639
00:33:16,040 --> 00:33:18,560
Speaker 14: So I think it's a headline that we have to watch,

640
00:33:18,640 --> 00:33:21,280
Speaker 14: but I think the headline is good going to outweigh

641
00:33:21,320 --> 00:33:24,720
Speaker 14: the actual changes that happen. I think there may be

642
00:33:24,760 --> 00:33:27,680
Speaker 14: some tweaks, you know. I know that the House was

643
00:33:27,840 --> 00:33:29,600
Speaker 14: Spens committee put it on their list, but it was

644
00:33:29,680 --> 00:33:31,920
Speaker 14: kind of down the list, and if you look at

645
00:33:31,960 --> 00:33:35,200
Speaker 14: what they had adjusted for the cost, that was somewhere

646
00:33:35,240 --> 00:33:39,160
Speaker 14: in between the savings. I think Nora was very on

647
00:33:39,200 --> 00:33:41,240
Speaker 14: top of things in her answer, where you know, she

648
00:33:41,360 --> 00:33:43,560
Speaker 14: talked about the fact that other things will go up

649
00:33:43,680 --> 00:33:46,480
Speaker 14: if that happens. It's it's a difficult thing to do too,

650
00:33:46,760 --> 00:33:48,760
Speaker 14: because what do you do with the existing bonds. You

651
00:33:48,840 --> 00:33:51,480
Speaker 14: probably have to grandfather the existing bonds. You cause a

652
00:33:51,480 --> 00:33:54,880
Speaker 14: bifurcated market. We saw this before in the meunium market,

653
00:33:54,880 --> 00:33:57,640
Speaker 14: mostly after the global financial crisis, and what we found

654
00:33:57,680 --> 00:34:00,640
Speaker 14: was there was a really good grassroots effort of school

655
00:34:00,640 --> 00:34:03,760
Speaker 14: districts and hospitals and universities to say, hey.

656
00:34:03,600 --> 00:34:05,400
Speaker 9: We don't want to borrow at the higher rates. It's

657
00:34:05,440 --> 00:34:06,200
Speaker 9: not a good idea.

658
00:34:06,360 --> 00:34:09,040
Speaker 14: So obviously in this administration, we're gonna have to wait

659
00:34:09,080 --> 00:34:11,080
Speaker 14: and see how things, you know, kind of play out.

660
00:34:11,080 --> 00:34:13,600
Speaker 14: But I'm not one of those, you know folks that's

661
00:34:13,640 --> 00:34:15,920
Speaker 14: that's in a panic over it. I think there's going

662
00:34:16,000 --> 00:34:17,759
Speaker 14: to be a lot more headlines about it, but I

663
00:34:17,880 --> 00:34:20,440
Speaker 14: just don't see a higher probability.

664
00:34:19,800 --> 00:34:22,280
Speaker 2: Of it knowing very little about how the mini market works,

665
00:34:22,320 --> 00:34:25,520
Speaker 2: like do where do issuers usually issue along the curve,

666
00:34:25,600 --> 00:34:27,200
Speaker 2: and like where is the best value?

667
00:34:27,400 --> 00:34:30,040
Speaker 14: So it's interesting that we used to just see long

668
00:34:30,120 --> 00:34:33,280
Speaker 14: paper thirty year bullets or thirty year ten year calls

669
00:34:33,360 --> 00:34:37,160
Speaker 14: was really a standard thing to do in the muni market. Separately,

670
00:34:37,239 --> 00:34:40,400
Speaker 14: managed accounts have become such a big part of investors

671
00:34:40,480 --> 00:34:44,360
Speaker 14: portfolios of the products that we offer in the muni business,

672
00:34:44,400 --> 00:34:46,520
Speaker 14: and so there is a lot of issuance zero to

673
00:34:46,560 --> 00:34:48,440
Speaker 14: ten years, five to fifteen years.

674
00:34:49,080 --> 00:34:51,000
Speaker 9: We actually like sort of the twenty year part of

675
00:34:51,040 --> 00:34:51,400
Speaker 9: the curve.

676
00:34:51,440 --> 00:34:53,839
Speaker 14: We think that, you know, the meunia curve does have

677
00:34:54,080 --> 00:34:56,839
Speaker 14: its steepest curve in the fixed income market, and that's

678
00:34:56,880 --> 00:35:00,359
Speaker 14: because investors want more yield for longer periods of time

679
00:35:00,520 --> 00:35:02,240
Speaker 14: that they go out, just like they want more yield

680
00:35:02,480 --> 00:35:05,040
Speaker 14: in more credit risks that they take. But the twenty

681
00:35:05,280 --> 00:35:06,960
Speaker 14: twenty to twenty two year part of the curve to

682
00:35:07,040 --> 00:35:10,320
Speaker 14: us looks really attractive both on a percentage to treasury

683
00:35:10,360 --> 00:35:13,279
Speaker 14: basis and where you get, you know, the most bang

684
00:35:13,360 --> 00:35:15,279
Speaker 14: for your buck while not going all the way out

685
00:35:15,280 --> 00:35:15,719
Speaker 14: on the curve.

686
00:35:15,840 --> 00:35:18,239
Speaker 4: All right, thirty seconds are you guys active buyers of

687
00:35:18,320 --> 00:35:18,920
Speaker 4: new issues?

688
00:35:19,320 --> 00:35:19,560
Speaker 9: Yeah.

689
00:35:19,600 --> 00:35:22,759
Speaker 14: Absolutely, I'd say sometimes it's fifty to fifty, sometimes it's

690
00:35:22,800 --> 00:35:24,880
Speaker 14: sixty forty. You know, we do a great job of

691
00:35:24,920 --> 00:35:27,600
Speaker 14: negotiating with the underwriters and making sure that the issuer

692
00:35:28,080 --> 00:35:30,799
Speaker 14: understands what our concerns are, whether that be getting a

693
00:35:30,840 --> 00:35:33,880
Speaker 14: mortgage or a debt service reserve fund, and then we

694
00:35:33,920 --> 00:35:36,480
Speaker 14: help structure the deals, what type of coupond we want.

695
00:35:36,400 --> 00:35:38,759
Speaker 9: What type of call they want. So there's a lot

696
00:35:38,800 --> 00:35:39,520
Speaker 9: of talking for us.

697
00:35:39,560 --> 00:35:40,719
Speaker 6: You just don't pick up the phone and take my

698
00:35:40,760 --> 00:35:41,200
Speaker 6: sales pic.

699
00:35:41,600 --> 00:35:42,600
Speaker 9: No, we don't. We don't.

700
00:35:43,120 --> 00:35:45,600
Speaker 2: Interesting, that's cool, So Mark, thanks love really so much.

701
00:35:45,640 --> 00:35:47,279
Speaker 2: Great Core hereis head of me to Simble bonds. You

702
00:35:47,360 --> 00:35:49,880
Speaker 2: were definitely welcome back. He's joining us IV Invesco. Right

703
00:35:49,920 --> 00:35:51,400
Speaker 2: here at BAM Mutual.

704
00:35:53,120 --> 00:35:56,799
Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live

705
00:35:56,880 --> 00:35:59,880
Speaker 1: weekdays at ten am Eastern on Apple, Cocklay and Android

706
00:36:00,400 --> 00:36:03,440
Speaker 1: with the Bluemberg Business app. Listen on demand wherever you

707
00:36:03,480 --> 00:36:06,880
Speaker 1: get your podcasts, or watch us live on YouTube.

708
00:36:07,920 --> 00:36:10,840
Speaker 4: Alex Deeal Paul Sweeney, we are live and the offices

709
00:36:11,000 --> 00:36:13,640
Speaker 4: of BAM Mutual build American Mutual to down here in

710
00:36:13,640 --> 00:36:14,320
Speaker 4: Lower Manhattan.

711
00:36:14,360 --> 00:36:16,239
Speaker 6: I call it the World Financial Center. I think they

712
00:36:16,239 --> 00:36:18,040
Speaker 6: now call it Brookfield Place. That's what the kids are

713
00:36:18,040 --> 00:36:18,759
Speaker 6: calling it. I don't know.

714
00:36:19,280 --> 00:36:22,880
Speaker 4: We're with the leader of Build American Mutual, Bad Mutual,

715
00:36:23,520 --> 00:36:26,400
Speaker 4: Sean McCarthy band Mutual CEO, Sean.

716
00:36:26,400 --> 00:36:28,280
Speaker 6: We've been here coming many many years.

717
00:36:28,840 --> 00:36:31,200
Speaker 4: Last year, I think in twenty twenty four, there was

718
00:36:31,239 --> 00:36:34,520
Speaker 4: five hundred billion dollars of new issuance in municipal bomb

719
00:36:34,520 --> 00:36:35,800
Speaker 4: Mark at a record A.

720
00:36:36,000 --> 00:36:36,719
Speaker 9: What drove that?

721
00:36:37,120 --> 00:36:39,399
Speaker 6: And B what are your expectations for twenty five?

722
00:36:40,400 --> 00:36:42,399
Speaker 8: So first, thanks for being here.

723
00:36:42,760 --> 00:36:46,799
Speaker 15: It's a really great tradition and we really enjoy being

724
00:36:46,840 --> 00:36:47,240
Speaker 15: the host.

725
00:36:48,239 --> 00:36:50,320
Speaker 8: So last year was a record year at five.

726
00:36:50,239 --> 00:36:54,799
Speaker 15: Hundred and seven billion, and I think the big driver there,

727
00:36:54,880 --> 00:37:00,280
Speaker 15: interestingly was new issuance for infrastructure projects. Okay, so tventy

728
00:37:00,320 --> 00:37:02,879
Speaker 15: five percent three hundred and thirty five million dollars three

729
00:37:02,920 --> 00:37:06,719
Speaker 15: hundred and thirty five billion dollars worth of paper that

730
00:37:06,800 --> 00:37:12,319
Speaker 15: came was for new schools, bridges, tunnels, roads, hospitals, So

731
00:37:12,520 --> 00:37:17,319
Speaker 15: really essential public purpose of infrastructure, and I think that's

732
00:37:17,360 --> 00:37:21,319
Speaker 15: going to continue. If we look at as an early indicator,

733
00:37:23,040 --> 00:37:25,759
Speaker 15: the number of referendums that were approved in California alone,

734
00:37:25,760 --> 00:37:28,640
Speaker 15: there were fifty billion dollars worth of school bonds.

735
00:37:28,360 --> 00:37:29,000
Speaker 8: That were approved.

736
00:37:29,400 --> 00:37:32,200
Speaker 15: Nationwide, there were one hundred billion dollars worth of new

737
00:37:32,200 --> 00:37:35,319
Speaker 15: projects that were approved. So we can see that there's

738
00:37:35,360 --> 00:37:39,239
Speaker 15: going to be a huge demand for projects that have

739
00:37:39,360 --> 00:37:42,120
Speaker 15: been deferred and sometimes in some cases over ten years.

740
00:37:42,560 --> 00:37:45,560
Speaker 2: Oh what about demand just newards of the older the

741
00:37:45,600 --> 00:37:49,839
Speaker 2: population gets, the more that tax free incentive might be

742
00:37:49,880 --> 00:37:52,080
Speaker 2: more interesting to people, like what are you guys are

743
00:37:52,080 --> 00:37:52,840
Speaker 2: noticing on demand?

744
00:37:53,360 --> 00:37:57,720
Speaker 15: So you know, for us we focused, we're at BAM.

745
00:37:57,760 --> 00:38:00,520
Speaker 15: We only guarantee municipal bonds and so I think the

746
00:38:00,560 --> 00:38:05,320
Speaker 15: real demand as you've put it, both for separately managed

747
00:38:05,360 --> 00:38:09,480
Speaker 15: accounts or for direct retail or the big funds are

748
00:38:09,560 --> 00:38:13,440
Speaker 15: are there is a value proposition that was described earlier.

749
00:38:14,360 --> 00:38:17,680
Speaker 15: In essence, people want more to take home. And so

750
00:38:17,719 --> 00:38:21,839
Speaker 15: the taxes tax e sumption on the bonds serves two

751
00:38:21,880 --> 00:38:25,560
Speaker 15: real core purposes. First, it lowers the cost to build

752
00:38:25,640 --> 00:38:27,839
Speaker 15: these essential infrastructure projects.

753
00:38:28,000 --> 00:38:30,839
Speaker 8: That's critical. The second thing is it provides.

754
00:38:30,560 --> 00:38:34,200
Speaker 15: A tax advantage so that actually investors can feel like

755
00:38:34,320 --> 00:38:37,080
Speaker 15: they're part of building America.

756
00:38:37,400 --> 00:38:40,879
Speaker 4: What percentage of new issuance gets your insurance from build

757
00:38:40,880 --> 00:38:44,359
Speaker 4: American mutual and is it a need thing, I need

758
00:38:44,360 --> 00:38:46,279
Speaker 4: your insurance to make it a lower rate.

759
00:38:46,680 --> 00:38:52,399
Speaker 15: So no. So basically what bond insurance does is we're

760
00:38:52,480 --> 00:38:57,640
Speaker 15: double a rated company from standard ports and so essentially

761
00:38:57,719 --> 00:39:03,360
Speaker 15: we put our guarantee on a municipality's debt to lower

762
00:39:03,400 --> 00:39:05,640
Speaker 15: the cost of borrowing. So think about it. Is you

763
00:39:06,280 --> 00:39:10,359
Speaker 15: co signing your kids student loan. So if you think

764
00:39:10,360 --> 00:39:12,239
Speaker 15: about it in those terms, you want them to get

765
00:39:12,280 --> 00:39:14,160
Speaker 15: a job and you want them to pay back their

766
00:39:14,160 --> 00:39:17,239
Speaker 15: student loan. But if they don't, you're paid. So we

767
00:39:17,320 --> 00:39:20,120
Speaker 15: act in that role. We are guaranteeing timely payment of

768
00:39:20,120 --> 00:39:23,279
Speaker 15: principle and interest when doe on the bonds. And so

769
00:39:23,320 --> 00:39:27,160
Speaker 15: that does two things that it makes investors comfortable that

770
00:39:27,200 --> 00:39:30,520
Speaker 15: they have liquidity, a higher rating, and it lowers the

771
00:39:30,520 --> 00:39:32,000
Speaker 15: cost of borrowing for all.

772
00:39:31,880 --> 00:39:33,319
Speaker 9: Of these things that widely used.

773
00:39:34,160 --> 00:39:38,000
Speaker 15: So if we think about the overall market for utilization,

774
00:39:38,080 --> 00:39:40,840
Speaker 15: I'd say it's around eight about eight ten percent of

775
00:39:40,880 --> 00:39:43,479
Speaker 15: the overall market. But the important thing to think about

776
00:39:43,600 --> 00:39:46,799
Speaker 15: is that bonds that are rated double air better don't

777
00:39:46,880 --> 00:39:48,600
Speaker 15: use bund insurance because they have a strong rating on

778
00:39:48,640 --> 00:39:50,680
Speaker 15: their own. And there's a certain class of bonds that

779
00:39:50,880 --> 00:39:54,520
Speaker 15: are you know, lower rated then would be acceptable for

780
00:39:54,719 --> 00:39:58,840
Speaker 15: the industry, and then there are certain sectors that aren't guaranteed.

781
00:39:59,320 --> 00:40:02,080
Speaker 2: So we've been coming here for seven nine years, right

782
00:40:02,200 --> 00:40:05,200
Speaker 2: something like that. What's the biggest change that you've noticed,

783
00:40:05,360 --> 00:40:08,760
Speaker 2: like in the last decade in terms of what we cover,

784
00:40:09,040 --> 00:40:11,759
Speaker 2: what you cover the zeke and the zeikeeist of the

785
00:40:11,760 --> 00:40:12,400
Speaker 2: Meuni market.

786
00:40:12,800 --> 00:40:16,680
Speaker 15: So I think the Meunia market's changed quite a bit

787
00:40:16,880 --> 00:40:19,600
Speaker 15: in the last decade, and it's had a lot of

788
00:40:19,680 --> 00:40:22,960
Speaker 15: events that it's really addressed handily. So if you think about,

789
00:40:23,200 --> 00:40:26,360
Speaker 15: for example, COVID, I mean it feels like COVID was

790
00:40:26,560 --> 00:40:29,720
Speaker 15: ancient history, but think about that, people stayed at home,

791
00:40:29,880 --> 00:40:35,719
Speaker 15: so bridges, tunnels, airports, toll roads just what their utilization

792
00:40:35,960 --> 00:40:41,279
Speaker 15: was dropped precipitously, and so the market was stood then

793
00:40:41,760 --> 00:40:45,840
Speaker 15: there were really, in essence, very few defaults on those transactions.

794
00:40:46,120 --> 00:40:47,879
Speaker 8: And so what you see happening in.

795
00:40:47,800 --> 00:40:51,240
Speaker 15: The market overall is this I think pent up demand

796
00:40:51,360 --> 00:40:55,080
Speaker 15: for new projects. I think a lot of people because

797
00:40:55,120 --> 00:40:58,960
Speaker 15: of COVID and because of you know, federal moneys that

798
00:40:58,960 --> 00:41:01,399
Speaker 15: were given to them that have now sort of burned off.

799
00:41:01,400 --> 00:41:05,279
Speaker 15: You can see this pent up demand to come with

800
00:41:05,400 --> 00:41:07,640
Speaker 15: your new project at this point and come into the market.

801
00:41:08,120 --> 00:41:09,960
Speaker 4: One of the themes that I think we just observed

802
00:41:09,960 --> 00:41:12,479
Speaker 4: today is kind of the natural disasters and what role

803
00:41:13,120 --> 00:41:15,880
Speaker 4: How will that impact the municipal bond market From your perspective,

804
00:41:17,360 --> 00:41:18,680
Speaker 4: how do you think that's going to play out? Because

805
00:41:18,680 --> 00:41:19,879
Speaker 4: it seems to be a thing.

806
00:41:20,080 --> 00:41:24,120
Speaker 15: It's a real issue, yep. So think about what BAM does.

807
00:41:24,840 --> 00:41:27,080
Speaker 15: We spend ninety nine percent of our time looking at

808
00:41:27,080 --> 00:41:30,759
Speaker 15: things that happen not very frequently. One of the things

809
00:41:30,760 --> 00:41:34,919
Speaker 15: we focus on are natural disasters. So if you think

810
00:41:34,960 --> 00:41:43,200
Speaker 15: about hurricanes, floods, earthquake risk, and right now wildfires. These

811
00:41:43,200 --> 00:41:47,320
Speaker 15: are all things that we incorporate into our underwriting process.

812
00:41:47,760 --> 00:41:52,040
Speaker 15: We evaluate them and it affects what we guarantee based

813
00:41:52,120 --> 00:41:54,200
Speaker 15: upon what we think that particular risk is. So we

814
00:41:54,280 --> 00:41:56,920
Speaker 15: turn deals down if we find that they're in an

815
00:41:56,960 --> 00:42:01,879
Speaker 15: area that's more prone to exposure to these particular kinds

816
00:42:01,920 --> 00:42:04,560
Speaker 15: of natural disasters. And we use a lot of analytical

817
00:42:04,600 --> 00:42:08,200
Speaker 15: tools that are available and something that we've developed ourselves

818
00:42:08,480 --> 00:42:11,160
Speaker 15: to measure what that severity is. So if you look

819
00:42:11,160 --> 00:42:15,680
Speaker 15: at Los Angeles, for example, I mean, if you're looking

820
00:42:15,719 --> 00:42:19,239
Speaker 15: at credits that are county wide or citywide. In Los Angeles,

821
00:42:19,360 --> 00:42:22,120
Speaker 15: it's a really big area, you know, the kind is

822
00:42:22,120 --> 00:42:26,239
Speaker 15: one hundred square miles, and so even though there's been

823
00:42:26,400 --> 00:42:30,440
Speaker 15: a couple of terrible fires there, the overall you know,

824
00:42:31,160 --> 00:42:34,719
Speaker 15: stability of the of the county and the city are

825
00:42:34,800 --> 00:42:38,879
Speaker 15: still quite strong, and they'll have the ability to sort

826
00:42:38,880 --> 00:42:40,160
Speaker 15: of address this and overcome it.

827
00:42:40,800 --> 00:42:43,400
Speaker 2: I can see that that being a very quickly evolving

828
00:42:43,520 --> 00:42:46,240
Speaker 2: changing topic, that must be very difficult to assess.

829
00:42:46,640 --> 00:42:49,359
Speaker 15: I think that's that is true. But remember the way

830
00:42:49,400 --> 00:42:52,880
Speaker 15: we look at credit risks. We are guaranteeing the bonds

831
00:42:54,120 --> 00:42:55,759
Speaker 15: till the last payment is made. So if you have

832
00:42:55,840 --> 00:42:59,080
Speaker 15: thirty year bonds, the way we look at credit risk

833
00:42:59,200 --> 00:43:02,200
Speaker 15: is not this sort of shorter cycle we're looking for

834
00:43:02,360 --> 00:43:05,360
Speaker 15: in One of the great strengths of municipal finance is

835
00:43:05,400 --> 00:43:09,080
Speaker 15: that the issuers and ourselves and the market it's in

836
00:43:09,120 --> 00:43:13,200
Speaker 15: itself are aligned, so that you know, the city of

837
00:43:13,239 --> 00:43:17,239
Speaker 15: Pittsburgh or the City of New York, or school districts

838
00:43:17,280 --> 00:43:20,880
Speaker 15: in local school districts all want to pay, you know,

839
00:43:21,160 --> 00:43:25,360
Speaker 15: fund their transactions with municipal bonds because it lowers their costs,

840
00:43:25,640 --> 00:43:27,960
Speaker 15: but they want to pay them back. So that's an

841
00:43:28,000 --> 00:43:31,200
Speaker 15: important thing that you know, in other kinds of corporate credits,

842
00:43:32,200 --> 00:43:34,000
Speaker 15: sometimes those interests get misaligned.

843
00:43:34,280 --> 00:43:36,319
Speaker 4: Interesting, all right, Sean, thank you so much for taking

844
00:43:36,320 --> 00:43:39,319
Speaker 4: some time here. Sean McCarthy, he's the CEO boss around here.

845
00:43:39,719 --> 00:43:42,400
Speaker 4: We appreciate him having us every year. He's Sean McCarthy's CEO.

846
00:43:42,480 --> 00:43:44,480
Speaker 4: BAM Mutual we will be.

847
00:43:45,200 --> 00:43:45,759
Speaker 6: We love coming in.

848
00:43:45,800 --> 00:43:47,560
Speaker 4: You're talking about the municipal bond market, of so many

849
00:43:47,560 --> 00:43:51,040
Speaker 4: assets and facets to that market, so we always appreciate

850
00:43:51,120 --> 00:43:51,520
Speaker 4: coming down.

851
00:43:52,040 --> 00:43:56,719
Speaker 1: This is the Bloomberg Intelligence Podcast, available on Apple, Spotify,

852
00:43:56,920 --> 00:44:00,399
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853
00:44:00,440 --> 00:44:04,160
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854
00:44:04,280 --> 00:44:07,800
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855
00:44:08,239 --> 00:44:11,160
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856
00:44:11,560 --> 00:44:13,800
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