PVI

The White House is still not decided.This was "prime time" for the blue wave conversations entering the bond market.Municipal bonds aren't hurt as much as they are not helped.A second stimulus bill that would include additional aid for state and local governments will be harder to come by with the House and Senate in control of different parties.The higher income taxes that we assume will be coming under either Biden or Trump would come faster under Biden but are less likely with a divided Congress.

In U.S. high yield bonds we find the riskiest of credits.I have some concerns about municipal bonds and am particularly concerned about municipal pension bonds.Our 'Borrower's Paradise' is also good news for many leveraged ETFs and closed-end funds.

Municipal bonds are illiquid and tax-exempt and thus well targeted at very wealthy high-income individuals who face high tax rates.Given the racial disparity in wealth, it would be astounding if the disparity in municipal bond holding were not very large as well.To forestall a bankruptcy, you do not just lend money for current operations - you end up taking on past debts.

Municipal defaults and bankruptcies remain rare overall, even though they may have become more common over the last 10 years.At the end of 2019, the median rating for U.S. municipal credits had risen to Aa2 (2018: Aa3).We still believe that municipal bonds remain important to the core strategy of constructing an individual portfolio.