S&P Dow Jones Indices Recaps 2012 Financial Market Performance; Identifies Headwinds That Could Impact Returns In 2013
For 2013, expect various factors to impact the municipal bond market: The uncertainty of tax code changes and their impact on the tax treatment of municipal bonds. So, if any new issue would be taxable as opposed to tax-free at the federal level, demand would increase for tax-exempt bonds already in the secondary market or if the tax-exempt status was to be reduced for high income investors that could have the opposite affect; The introduction of recovery bonds following Hurricane Sandy and the increased supply could potentially reverse the supply/demand imbalance; A rising interest-rate environment that affects bonds in general also impacts municipal bonds. An increase in the supply of new issues into the municipal bond market as municipalities begin to exit the long economic cycle and begin to fund long-term infrastructure projects such as schools, transportation, energy, and jobs creation; A dramatic increase in monetary defaults and or bankruptcy filings that might change perceptions of the high-yield municipal bond market. Those bonds could see their prices fall and yields rise at a fast pace relative to investment-grade municipal bonds."
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