Bonds: 2017 Year-End Review and 2018 Outlook

The supply-and-demand dynamics are setting up for a very good year for municipal bonds relative to Treasuries. New-issue supply will most likely drop materially from above $400 billion the last two years to below $300 billion, which would be a low supply not seen in over 20 years. Demand will be particularly strong from high net worth individuals that reside in states that have high in-state income tax regimes. Expect to see the municipal bond yield curve continue to flatten, but not as dramatically as in 2017. Importantly, we remind investors to avoid being concerned with how the tax bill could impact the fixed income market and instead focus on the role it plays in investors’ portfolios.