As municipal bondholders continue their struggle to make sense of last year’s tax legislation, Congress is set to knock down one argument against participating in the $3.8 trillion market.
Investors are expecting the Senate to pass a bipartisan bill that would include municipal debt in the coveted category of high-quality liquid assets as part of a bid to roll back some elements of the Dodd-Frank law put in place after the financial crisis. The proposed legislation would stoke appetite for municipal bonds among banks, steadying a market still reckoning with the recent tax cuts.
“It takes one of leg of the argument against the muni market as it goes through a shake-up,” said John Mousseau, director of fixed-income strategy at Cumberland Advisors.
“Why wouldn’t you want better credit collateral than you’re getting with existing legislation on corporation debt,” said Mousseau.