Order Reprints Text size
Freshly cleaned subway trains sits at the MTA Maintenance Facility in Queens. Scott Heins/Getty Images
The municipal bond market is starting 2021 on a strong note amid robust demand, light supply of new issues, and expectations of fiscal relief for state and local governments as well as potentially higher income taxes with full Democratic control in Washington.
A key indicator of tax-exempt bond demand, the yield ratio of 10-year triple-A munis relative to the 10-year Treasury note, stands at 66% and is at its lowest level in 20 years. The ratio began the year at around 75% after peaking at over 200% during the market turmoil last March. It has averaged close to 100% over the past 20 years.
The Federal Reserve building Olivier Douliery/AFP via Getty Images
Bank investors might have thought they had reasons to fear a Democrat-controlled government. The prospect of higher taxes and increased regulation implies weaker earnings for the sector.
But historical data collected over nearly 70 years suggests that bank investors not need to worry much about a Biden administration and Democrat-controlled Congress.
Since the Nov. 3 election, bank stocks, as measured by the
KBW Bank Index (ticker: BKX) have soared 31%, outpacing the 10.6% gain in the
S&P 500 over the same period. Bank stocks also got a boost last week after Democrats Jon Ossoff and the Rev. Raphael Warnock prevailed in the Georgia Senate runoffs, giving the party a slim majority in the Senate and control of Congress.