Beyond Bulls & Bears

Fixed Income

US Infrastructure Plan and Muni Bond Update

In May, our municipal bond team published some thoughts on US President Biden’s $2 trillion infrastructure package called “The American Jobs Plan.” As this package makes its way through Congress, the team will provide updates—here’s the latest from our Muni Bond Director Jennifer Johnston.

On June 24, US President Joe Biden announced his support for the “Bipartisan Infrastructure Framework.” This $1.2 trillion agreement was developed by 10 Republican and 10 Democratic Senators. This plan essentially strips out the social infrastructure programs included in the original plan and focused on traditional infrastructure projects. Of the $1.2 trillion, $579 billion represents new spending with the rest funding several existing programs, including a recently passed water infrastructure bill and the surface transportation bills.

Of the new spending, $312 billion is for transportation infrastructure, with the largest components being $110 billion for roads, bridges and major projects and $66 billion for passenger and freight rail. The remaining $266 billion is for other infrastructure including $73 billion for power infrastructure and $65 billion for broadband.

The details on how the plan would be paid for are not clear at this time. The plan cites unspent COVID-19 relief funds, public-private partnerships and infrastructure revolving funds as possible sources. While we expect municipal bonds to play a part of this plan’s implementation, the framework does mention private activity bonds and direct pay municipal bonds as being tools.

This agreement was just a framework and the next step will be drafting actual resolution that would go first to the Senate and then to the House for approval before the budget reconciliation process.

While this framework has a ways to go before becoming law, it is an important milestone in the process. We will continue to provide updates when opportunities arise.

What Are the Risks?

All investments involve risks, including possible loss of principal. The value of investments can go down as well as up, and investors may not get back the full amount invested. Because municipal bonds are sensitive to interest rate movements, a municipal bond portfolio’s yield and value will fluctuate with market conditions. Bond prices gener­ally move in the opposite direction of interest rates. Thus, as prices of bonds in an investment portfolio adjust to a rise in interest rates, the portfolio’s value may decline. Changes in the credit rating of a bond, or in the credit rating or financial strength of a bond’s issuer, insurer or guarantor, may affect the bond’s value.

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