February 24, 2020 – As of this morning, fears of a prolonged #coronavirus outbreak and potential Bernie Sanders’ Presidency tanked equity markets.

As of 11 a.m. eastern time, the Dow Jones index is down over 800 points. 5, 10 and 30 year Treasuries are down by about 10 basis points (lower yield).

Equity investors appear to have underestimated the impact of the virus outbreak in China, which has spread to forty countries including Japan (838 cases/4 deaths), South Korea (833/8), Italy (152/6) and Iran (43/12). Based on available reports, there has been 35 confirmed cases in the United States, with no fatalities.

Several investment houses and economists have downgraded their growth forecasts for Q1 2020, although most revisions were cautious and predicated on the virus outbreak being contained by the end of March. As previously reported by BuyMuni, Moody’s Investor Service reduced it’s 2020 G-20 and China growth by 20 and 60 basis points, respectively.

Municipal market participants contacted by BuyMuni indicated that the flight-to-safety to Treasuries and fixed income securities will likely sustain the current municipal bond rally well into the second half of 2020.

MMD reads as of 10 a.m. indicated a 6-9 basis point adjustment (lower yield) for AAA bonds maturing after 2029.

Over the medium term however, weaker economic growth and a lower interest rate environment could wreck havoc on state and local governments’ finances. Even as states/locals are hamstrung with the (lack of ) affordability of tax increases to fund social program expansion and capital projects, low investment returns are exponentially raising the unfunded pension and OPEB liabilities for some of the nation’s largest issuers including New Jersey, Connecticut and California.

Contact Lisa Lopez at LLopez@buymuni.com.