The SNW Investment Team maintains a stable outlook on the Local General Obligation Bond (Local GO) Sector and recommends a marketweight allocation to it. We expect Local GO credits to provide stability relative to other tax-backed sectors, as well as to more economically sensitive revenue bond sectors. We also expect that credit spreads in the sector will be less volatile than in other sectors. The outlook assumes that the level of issuance of Local GO bonds will remain in line with recent trends.
Property taxes are the primary source of revenue to repay Local GO bonds, and we continue to expect that they will provide stable revenue. Property valuations underlying tax revenues have had robust growth, and even in the event of an economic downturn, property tax provisions typically create a banking of gains that can offset decreased valuation. Given the lags between economic activity and property tax collections, we expect that any impacts from a downturn in real estate conditions would not be realized until the 2020 or 2021 fiscal years.
Despite recent financial market performance, pension liabilities remain a long-term credit issue due to changing demographics, growing expenditures and continually increasing contribution levels. The type of GO pledge can mitigate the impact of pensions or other factors. Local GO bonds backed by unlimited tax pledges provide stronger bondholder protections than Limited Tax GOs, and the risk profile of the Unlimited Tax GO is significantly lower than local appropriation debt despite recent rating agency upgrades.
Related: Consumer Price Index Ticks Up
The SNW Investment team has seen tactical opportunities for value in the Local GO Sector, particularly with some mid-grade quality bonds in the A rating category. We will continue to look for opportunities to invest in Local GO credits that provide credit stability and value.
Signs of Slowing Economy Continue to Mount
11 Most Read IRIS Articles of the Week!
3 Strategies to Feel More in Control of Your Investments in 2019
3 Life Insights From the Jeff and Mackenzie Bezos Divorce
Weekend Warriors: Ortho Regenerative Technologies Begins Final Animal Studies in Rotator Cuff Repair
Advisors: A New Way to Build Trust With Your Audience on Social Media
4 Tips to Get Over Your Fears of Being on Camera
Top 7 Questions To Identify Core Leadership Skills
How Technology Is Helping Clients Take a Bigger Role Than Ever
What Happens When Labour Gets Commoditized
Markets1 day ago
Long-Term Investors: The S&P 500 Is Not Your Friend. Here’s Why.
Development1 day ago
Again, and Again, and Again: The Way to Build a Great Advisory
Advisor Marketing1 day ago
How to Integrate a Robo-Advisor Offering on Your Website
Equities2 days ago
MIT Says 2019 the Year That Blockchain Goes Mainstream
Sales Strategy2 days ago
The “Polite” Prospect Can Be the Most Difficult Prospect
Human Performance2 days ago
6 Techniques to Close Deals Faster
Markets3 days ago
Is the Market Rising Due to the Lack of Bad News Screaming at Us?
Markets3 days ago
The Early Bird Sells too Soon