Munis: Post 2018 election outlook

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  • Democratic control of House will benefit tax-exempt municipal bond demand as risk of tax cuts and repeal of ACA is lessened
  • Increased possibility of bi-partisan infrastructure program
  • 36 newly-elected governors will determine the 2019 budget cycle
  • Municipal market technical show strength post-election and into year end

MacKay Municipal Managers feels the outcome of the 2018 Midterm Election will be overall positive for the municipal market.

As the market digests the outcomes from federal and state and local elections, as well as numerous ballot measures, uncertainty and volatility which the market experienced in the weeks leading up to the election will now be replaced with relief going into the year end.

The split of Congress with a Democratic-controlled House and a Republican-controlled Senate adds stability to the municipal market as risks of a Republic majority in the House and the Senate implementing another round of tax cuts (“Tax Cut 2.0”), which could have lessened demand for municipal bonds, has been eliminated.

The split in Congress leads to more likelihood of bi-partisan support for the development of an Infrastructure policy which has been a promoted by both parties. Funding of an infrastructure program remains uncertain, particularly given the growing deficit following tax reform in 2017, however, possible new funding programs including some sort of revival of the 2010 Build America Bonds program, which provided federal tax credits to state and local issuers, could be a consideration.

At the state and local levels, MacKay Municipal Managers believes the 36 Governor elections will provide new leadership to state governments who must navigate numerous budgetary demands, including rising pension costs, with increasing revenue collections from the strong US economy.

State budgets should benefit from Democratic control of the House as the risk of the repeal of the Affordable Care Act and the potential reduction of Medicaid payments to the states will be lessened. Municipal market technicals going into the year end, which sees a limited new issuance calendar and negative net supply, could present improving performance into the year end.

This material contains the views and opinions of certain investment professionals at MacKay Shields LLC which are subject to change without notice. The opinions expressed herein do not necessarily represent the views of all MacKay Shields investment professionals. This material is distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy, or investment product. Prospects, clients and investors should understand the risks involved with specific products or services and consider this information in the context of its risk tolerance and investment goals. All investments contain risks and may lose value. Any forward looking statements speak only as of the date they are made, and MacKay Shields assumes no duty and does not undertake to update forward looking statements. Past performance is not indicative of future results.

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MacKay Municipal Managers

MacKay Municipal Managers™ team of MacKay Shields is co-headed by John Loffredo and Robert DiMella. John and Robert previously headed the largest municipal asset management group at Merrill Lynch Investment Managers/BlackRock. John and Robert have experience managing municipal assets across institutional separate accounts, open-end and closed-end funds

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