- As rates move up and supply levels drop, the outlook for new issuance has decreased despite growing investor demand and healthy state and local balance sheets. Rising rates will make some issuers “pause” as the cost to borrow no longer makes economic sense. I expect this trend to continue, which should help pricing as we move through the year.
- Tax revenues in states continue to increase. NY State tax revenue soared to $84.4B in the first nine months of 2021, $12.9B more than forecasted. Many states are experiencing these increases. I believe this trend will continue through the year's balance, making MUNIs credit quality stronger. Overall tax rates for individuals should increase this year.
- Many economists indicated that GDP plunged 16% in the first week of the year as the Omicron Variant weighed on demand for in-person activities and led to employee absenteeism and business closures. I am surprised how well the equity markets are taking this news. I expect some selloff based on GDP and overall production moving down. For 2022 many economists are expecting GDP growth to come in at 3.60% as compared to previously reported 3.90%. This will be good for fixed income investments, particularly higher-grade paper, as credits will continue to increase along with liquidity.
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