Shutdown Dashes Wall Street's Hope Trump Would Boost Bond Sales
(Bloomberg) -- If Wall Street’s municipal-bond departments are looking for Washington to help them drum up business, the prospects appear bleak.
Big underwriters would have liked for President Donald Trump to make good on his campaign promise to enact a major infrastructure plan, since states and cities would likely issue debt to cover their share of the projects.
But sales of new state and local government bonds tumbled 22 percent last year, and the record-long shutdown that tarnished Trump’s relationship with the new Democratic majority in the House of Representatives left those at a Bond Buyer conference in New York pessimistic.
"Can you rely on the federal government for help at all?" asked Howard Cure, director of municipal-bond research at Evercore Wealth Management. "Based on what happened with the shutdown you would have to be crazy to think they could help."
There’s certainly a need for help: The American Society of Civil Engineers estimates the country needs to increase its spending by $2 trillion through 2025 to get its roads, schools and other infrastructure in adequate shape. Trump spoke disparagingly of the state of affairs before taking office.
Dan Tomson, co-head of public finance at Citigroup Inc., the second-largest municipal bond underwriter, said it was "unlikely" that a federal infrastructure bill would be passed this year.
So the industry seems to have settled around a much more modest agenda in Congress, like expanding the use of so-called private activity bonds, issued on behalf of businesses, or resurrecting advance refundings, a refinancing tactic that was essentially killed off by Trump’s tax bill. That was a big driver of the bond-sales slowdown last year.
"Our agenda as an industry -- first and foremost, we have to keep what we have," said Bob Spangler, co-head of public finance at RBC Capital Markets. He said the preservation of the tax break for municipal bonds is crucial. "It is painfully aware to all of us that Washington’s actions do matter in terms of our marketplace."
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