Why trade tensions with China may help muni bonds
By
Gary Siegel
Economy Trump administration Tariffs Trade agreements
Trade tension, sparked by President Trump’s threat to increase tariffs on $200 billion of Chinese imports this Friday, and 25% tariffs on $325 billion of Chinese goods "shortly," may not turn out badly for the municipal bond market.
President Donald Trump
President Donald Trump's bluster may make munis look like a safe haven. Bloomberg News
As the stock market declines on trade worries, high-tax bracket investors may turn to the muni market for a safe haven, according to Steven Jon Kaplan, CEO at True Contrarian Investments LLC. “If the trade tensions lead to especially large losses for U.S. equity indices, then this will probably cause more investors to switch into bonds,” he suggested.
The bond market may lose some investors seeking the safe haven of Treasuries, but if the Federal Reserve is forced to lower interest rates — and traders have moved up expectations of a cut to next spring from summer — it will benefit bonds.
If no deal is reached and the 25% tariffs are imposed, he said, "it will raise uncertainty in the equity market. I expect that it will, in turn, increase volatility in stocks and lower interest rates in the bond market. This would create an environment that will provide a short-term upside for municipal bonds."
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