The new administration’s infrastructure spending plan could have an impact on municipal bond investors. Capital Group portfolio manager Karl Zeile discusses the possible implications.
Capital Group portfolio manager
26 years of investment experience
Luke Farrell: Karl, there’s been a lot of talk from this administration on large-spending infrastructure projects. Can you talk more about how that’ll affect the muni market?
Karl Zeile: The infrastructure proposals have actually created a fair amount of discussion within our municipal bond team, for a couple of reasons — first of all, because we don’t really know what that infrastructure plan, if it does come to be, will look like. I can paint a couple of different scenarios, some that are actually fairly favorable for the municipal bond market and others that could be, on the margin, negative.
We don’t know, for example, how those projects will be financed. Will they be financed through the traditional tax-exempt municipal bond market? Or will they be financed another way — similar to the Build America Bonds program coming out of the global financial crisis, which actually didn’t create additional supply to the traditional municipal bond market because they were taxable bonds.
The other question that we don’t know is whether or not the opportunities to put that much money to work in building infrastructure over a very short time frame is even feasible. In fact, based on our experience within the municipal bond area, actually doing this — and financing large-scale infrastructure projects like toll roads and bridges and airports and power plants — you’d actually be surprised about how long it takes to properly approve and site and plan and finance and ultimately build large-scale infrastructure. Even if a proposal is put into place in the coming months, it’s very, very unlikely that we would see a meaningful impact over the next year or two.
And again, not only the timing is uncertain, but also the way in which they decide to finance that type of infrastructure is also very uncertain. So we are, broadly speaking, pretty skeptical about the impact that this large-scale infrastructure proposal will have on economic growth and the U.S. economy in the near term.